
Copyright N?.. 



COPYRIGHT DEPOSIT. 



COMMERCIAL LAW 



Commercial Law 



By HARRIS F. WILLIAMS 




AMERICAN BUSINESS MAN 

SPECIAL EDITION 

CHICAGO 
1907 



L&ttARY of CONGRESS/ 

"iwu Oooies Reserved • 

AUG 12 1907 

Oopyn ff ht Entry 1 'i ?H? 

CLASS*; A XXc, No, I 

I83%f6 

COPY B. 



HFi% 37 

1^7 



Copyright 1903, by 
Chicago Correspondence Schools 



Copyright 1907, by 
Robert John 



COMMERCIAL LAW. 



CONTENTS . 



INTRODUCTORY 

Kinds of Law 7 

Personal Rights 8 

Property Rights 9 

I. CONTRACTS. 

Parties 11 

Agreement 15 

Consideration « 16 

Subject Matter 19 

Kinds of Contracts 21 

Interpretation, Discharge, Breach 26 

Frauds 30 

Review Questions 32 

II. PARTNERSHIPS. 

How Formed 36 

Kinds of Partnerships 37 

Kinds of Partners 38 

Partners and Their Duties 40 

Powers and Liabilities 41 

Dissolution 42 

Review Questions 43 

III. CORPORATIONS. 

Classes of Corporations 45 

How Organized 48 

Growing Influence 51 

Powers 51 

Records and Stock 53 

Dissolution 55 

Review Questions 56 



iv CONTENTS 

IV. COMMERCIAL PAPER. 

Drafts 59 

Checks 66 

Notes 69 

Collateral 71 

Judgment 72 

Negotiability , 73 

Accommodation Paper 76 

Protest 76 

Review Questions 77 

V. PRINCIPAL AND AGENT 

Kinds of Agents 81 

Parties — Power of Attorney , 82 

Authority of Agents 84 

Agents' Wrong Doings 87 

Compensation 88 

Personal Liability of Agents 89 

Termination 90 

Review Questions . 91 

VI. INSURANCE. 

Fire Insurance 94 

Life Insurance ; 96 

Insurable Interest 98 

Accident Insurance 98 

Review Questions 99 

VII. PROPERTY— Real and Personal. 

Real Property 102 

Title 103 

Warranty Deed, Long Form 105 

Warranty Deed, Short Form 107 

Quit-Claim Deed, Short Statutory Form 107 

Landlord and Tenant 110 

Lease, Sho t Form 115 

Mortgages 118 

Principal Trust Deed Note 120 

Interest Coupon Note 120 

Trust Deed, Short Form 121 

Same Person as Payee and Maker 123 

Chattel Mortgages 124 

Chattel Mortgage Note 125 

Short Form 125 

Review Questions 128 



CONTENTS v 

VIII. BAILMENT 

Degrees of Care 131 

Degrees of Negligence 131 

Classes of Bailment 131 

Deposit 132 

Commission 1 32 

Gratuitous Loans 132 

Pledge 133 

Hire 133 

Review Questions , 134 

IX. COMMON CARRIERS. 

Duties and Liabilities 135 

Review Questions 137 

X. INSOLVENCY AND BANKRUPTCY. 

Bankruptcy 1 40 

Kinds of Bankruptcy 140 

Debts not Affected by Bankruptcy 142 

Review Questions 143 

MISCELLANEOUS 144 



Commercial Law 



INTRODUCTORY. 

Law is usually divided into four classes: (1) 
Natural, (2) Moral, (3) International, and (4) Munic- 
ipal. 

Natural Law may be defined to be the regular 
method by which certain effects follow certain causes. 
It pertains to material things and forms the basis 
of the sciences. 

Moral Law is prescribed by the customs and 
usages of good society, and is for the guidance of 
man's general conduct with his fellowmen. 

International Law comprises the rules under 
which civilized nations regulate their intercourse 
with each other. It is based upon custom and long 
usage. The law-making powers of different nations 
sometimes enact laws pertaining to international 
affairs, but such laws, of course, are not necessarily 
binding on other nations, though often respected 
by them . 

Municipal Law is a rule of civil conduct pre- 
scribed by competent political authority, command- 
ing what is right and prohibiting what is wrong. 
Treaties made between this country and others, the 
constitution of the United States, the enactments of 
the Congress, the decisions of the Federal courts, the 
constitutions of the various states of the Union, the 
enactments of the various legislatures of the different 
states, the decisions of the state courts of last resort 



8 COMMERCIAL LAW 

throughout the Union, and the laws and ordinances 
of various lesser municipal bodies, such as cities, 
villages, etc., constitute the law of the land. 

This law of the land is of two kinds: common 
and statutory. 

The common law comprises those rules of civil 
conduct which had their origin in the common 
wisdom and experience of mankind, and which in 
time became established and sanctioned by the de- 
cisions of courts of last resort. The common law is 
expressed and preserved in the judgments and de- 
crees of courts. The common law, where unmodi- 
fied by statutory law, is no less the law of the land 
than that which is promulgated by special enact- 
ments. It comes to us from the old common law 
of England ; but, in many of the states of the United 
States, it has been greatly modified by the legisla- 
tures. In cases where there is no statutory law per- 
taining to a given subject, the rules of the common 
law will prevail. 

Statutory law comprises the enactments of the 
legislative power of the state. Though it has the 
common law for its basis, it often modifies and 
sometimes supersedes the common law. The con- 
stitution is the fundamental law of the state, being 
enacted by direct command of the people, and all 
legislative enactments must conform to the constitu- 
tion. Any act of the legislative power which does 
not so conform to the constitution will be declared 
unconstitutional and void by the courts. 

PERSONAL RIGHTS. 

Law is chiefly concerned with rights and duties. 
If a person has a right to a certain thing, or to a cer- 



COMMERCIAL LAW 9 

tain freedom of action, it is the duty of others to 
respect that right. Rights are divided into two 
classes: (1) the rights of persons, and (2) the rights 
of things. 

Personal rights, or the rights of persons, are: 
(1) the right of personal security, and (2) the right 
of personal liberty. It is fundamental in our law 
that every person has the right to life, liberty, and 
the pursuit of happiness. These rights are inherent 
in the nature of every individual. Every person 
has the right to the free use of his own body, and to 
perfect freedom from restraint when acting within 
the scope of law. He also has the right to the 
security of his reputation and of his good name. 
Personal rights include all of those rights which per- 
tain to the individual and are unconnected with his 
property interests, and can only be taken away from 
the individual when he has violated some law which 
necessitates his personal restraint. The right of 
personal liberty means that each one shall have the 
right to exercise his power of locomotion and to 
change his situation whenever he so desires. This 
right of personal liberty is the basis of the Habeas 
Corpus act which was passed in the reign of Charles 
II. One of the principal objects of law is to main- 
tain and protect these rights of personal security 
and personal liberty. 

PROPERTY RIGHTS. 

Property rights are those which a man may ac- 
quire in and to things unconnected with his person. 
These are the rights of dominion or property which 
a man claims and exercises to the exclusion of all 
others. Few seek to investigate the foundation of 



10 COMMERCIAL LAW 

these rights, being satisfied with the possession of 
property, the reasons for which they are reluctant 
to examine. It is the object here to examine into 
and exemplify so far as possible the law pertaining 
to the everyday transactions in relation to property 
in the so-called commercial or business world. 



I. 

CONTRACTS. 

First and foremost is the subject of contracts. 
Every business transaction is based upon a contract. 
The essential elements of the contract may be ob- 
scured by the thing to which it pertains, but they are 
none the less there. If a person goes into a store and 
buys a hat for five dollars, there is a contract made 
and executed simultaneously. The buyer and the 
seller constitute the necessary parties ; the offer to 
sell for five dollars and the acceptance of the offer 
show the meeting of the minds ; the hat for the one, 
and the five dollars for the other, are the considera- 
tion; and the sale of legitimate merchandise, the 
subject matter. 

A contract, therefore, is an agreement between 
two or more parties, for a sufficient consideration, to 
do or not to do a certain thing; the necessary ele- 
ments of the contract being: 

1. Parties. 

2. Agreement or meeting of the minds of the 
parties. 

3. Consideration. 

4. Subject matter. 

PARTIES. 

There must be at least two parties to every con- 
tract. There may be as many more as are inter- 
ested in the subject matter. In order that the con- 
tract shall be valid, the parties must be free from 
legal and mental disabilities. 

Legal disabilities apply in the cases of infants, 
married women, and alien enemies. 



12 COMMERCIAL LAW 

Mental disabilities are such as lunacy, idiocy, 
intoxication, and profligacy. 

Infancy. — Every person in law is an infant until 
he reaches his majority. This is regulated by the 
statutes of the different states. In nearly all the 
states males become of age at twenty-one and 
females at eighteen. In some cases an infant may 
make a binding contract, but the general rule is that 
he cannot. His contracts made for necessaries fur- 
nished to him are binding. Necessaries include 
food, clothing, shelter, medical attendance, and in- 
struction such as are suitable to his station in life. A 
contract made by an infant may be ratified by him 
after he reaches his majority and then become bind- 
ing. But he may either ratify the contract or avoid 
it as he chooses after he becomes of age. If he 
wishes to avoid the contract on the ground of infancy, 
he must do so without delay when he reaches legal 
age. An ordinary contract made with an infant is 
what we call a voidable contract — that is, the in- 
fant, who is one of the parties to the contract, may 
avoid it or not as he desires. If he does not wish to 
avoid it, and it is a proper contract in other respects, 
he may insist upon its enforcement. The right to 
avoid the contract is a personal one and belongs to 
the infant exclusively. If he transfers his interest 
in the contract, such transfer will not carry with it 
the right which the infant had to set up his infancy 
as a defense. It is not to be understood, however, 
that a minor can use his infancy for the purpose of 
defrauding others out of their property with im- 
punity. The law construes infancy as a shield and 
not a sword. 

Married Women. — Under the common law, 



COM M ERC I A L LAW 13 

married women could not make contracts. Their 
legal existence was merged in that of their husbands. 
Whatever property a woman had at the time of her 
marriage passed to her husband. He was her lord 
and master, and entitled to all her earnings. She 
could neither act for herself nor for him, except 
when she did so as his agent, or when she procured 
necessities after he had failed to supply them. 

But modern enlightenment has changed nearly 
all this. In almost every state in the Union a 
married woman is now as free to make contracts and 
to acquire and dispose of property as though she 
were single. She may sue and be sued without 
being joined by her husband, and without his con- 
sent. She may retain and manage property which 
she may have at the time of her marriage, or which 
she may afterwards acquire. 

Alien Enemies. — Contracts made between citi- 
zens of countries which are at war with each other 
are void. This is to prevent the interest of the 
subject from becoming antagonistic to that of his 
country. During war, the government has the 
right to draw upon every resource, and if private 
individuals were allowed to sell goods to, and other- 
wise deal with, the subjects of a hostile nation, they 
might thereby aid the enemy. 

Lunacy. — A lunatic is one who has lost his 
reason. Lunacy may be either total or partial. 
When total there are frequent lucid intervals. A per- 
son partially insane may make contracts on those sub- 
jects which are not affected by his insanity. One who 
is totally insane may make binding contracts on any 
subject during his lucid intervals. When a person 
sets up insanity as a defense, that is, as a reason why 



14 COMMERCIAL LAW 

he should not carry out his contracts, the burden of 
proving his insanity is upon him, as the law pre- 
sumes that every one is of sound mind until the con- 
trary is shown. Contracts made with insane per- 
sons are, therefore, not necessarily void but voidable. 
If an insane person enters into a contract during his 
disability, he may afterwards ratify it when he has 
regained his reason. Lunatics, like infants, are 
bound by their contracts which are made for the 
necessaries of life. If a tradesman takes advantage 
of a lunatic or of an infant, and sells him an article 
of necessity at an exorbitant price, the law will sub- 
stitute a reasonable price, and the tradesman can 
only recover what is customary and reasonable. 

Idiocy. — An idiot is one who is naturally de- 
fective in intellect, and therefore incapable of under- 
standing the nature and effect of contracts. As in 
the case of lunatics and infants, he can only be bound 
for necessaries.. 

Intoxication. — Where a person is so completely 
under the influence of liquor that he is incapable of 
acting intelligently, he will be incapacitated from 
contracting. After he becomes sober, he may con- 
firm any contract which he may have made when 
intoxicated, or he may avoid k if he chooses. If he 
decides to avoid it, he must return whatever he may 
have received. Slight intoxication, of course, will 
not incapacitate a person. Conservators are often 
appointed for habitual drunkards, as in cases of 
lunatics and idiots. 

Profligacy. — Spendthrifts are frequently de- 
prived of all control of their property through the 
appointment, by a court of competent jurisdiction, 
of conservators. Contracts made by profligates, 



COMMERCIAL LAW 15 

previous to the appointment of the conservator, are 
valid and can be enforced, unless it is shown that 
fraud has been practiced. After the appointment 
of the conservator, agreements made by a spend- 
thrift are void. 

The law presumes that every person is of sound 
mind and in possession of all his faculties, and ca- 
pable of contracting in every way, until the contrary 
appears. While a minor may avoid his civil con- 
tracts through infancy, such defense will not save 
him when he is charged with a crime. Every person 
who has arrived at the age of discretion is responsible 
for his criminal acts. 

AGREEMENT. 

The agreement, or the meeting of the minds of 
the parties, is essential to every contract. This 
usually comes about through an offer by the one and 
an acceptance by the other. The offer and acceptance 
may be verbal or in writing. The offer may be made 
and accepted at one and the same time, or the offer 
made and time given in which to accept. Where 
there is time given for the acceptance, the other 
party may accept at any time within the limit, pro- 
vided the offer is not withdrawn. 

More disputes arise from verbal than from 
written contracts. People often agree when talking 
to each other, only to find that their ideas are en- 
tirely different when they come to reduce them to 
writing. It is better, therefore, in making contracts 
of importance and which cover long periods of time, 
to reduce them to writing wherever possible. Life 
is, of course, too short to draw up written agreements 
for small daily business transactions. 



16 COMMERCIAL LAW 

An offer made by one party may be accepted by 
another without a word either spoken or written; 
that is, he may act upon the offer and his action will 
be considered as an acceptance. 

If an offer is made or an acceptance procured 
under duress, it will not be binding and there is no 
contract. The law will not compel a person to carry 
out a contract the terms of which he has been forced 
to consent to by threats of personal injury or un- 
lawful imprisonment. 

If either the offer or the acceptance is secured 
by fraud, the contract will be bad. Fraud vitiates 
everything into which it enters, and any party to a 
contract, on finding that he has been defrauded, may 
avoid the contract at his option, provided he does 
so within a reasonable time, and returns or offers to 
return whatever he may have received. Likewise 
a mistake as to the facts, if mutual, may relieve the 
parties from the obligations of their contract. 

CONSIDERATION. 

Consideration is that which one party to a con- 
tract gives or does or promises in exchange for what 
is given or done or promised by the other party. It 
is the reason which moves the party to enter into a 
contract. In all contracts there must be something 
given in exchange, or something that is mutual or 
reciprocal. This thing, which is the price or motive 
of the contract, is called the consideration. 

In the case of the purchase of the hat, the five 
dollars was the consideration upon which the mer- 
chant parted with his merchandise, and the hat the 
consideration upon which the buyer parted with his 
money. What was consideration for one was sub- 



COMMERCIAL LAW 17 

ject matter for the other. If the hat had been ob- 
tained without either the payment of anything, or 
the promise to pay or do something, there would 
have been no consideration and hence no contract. 

There are two kinds of consideration : good and 
valuable. 

Good Consideration. — Love, affection, esteem — 
these are good considerations. As between the 
parties they will support an executed contract ; that 
is, a contract which is completed, one where nothing 
remains to be done in the future ; but such considera- 
tions will not support an executory contract ; that 
is, one which is to be completed in the future. For 
example, a father may deed to his son a piece of land, 
in consideration of love and affection, and the deed 
being executed the father will be bound by it. But 
if the father, in consideration of love and affection, 
agrees that at a certain time in the future he will 
deed the property to his son, then this will be an ex- 
ecutory contract, one on which something remains 
to be done, and if the father changes his mind, the 
son cannot compel him to convey. Every executory 
contract must be based upon a valuable considera- 
tion. 

Valuable Consideration. — By valuable consid- 
eration is meant money, goods, marriage, work done, 
services rendered or promised, and the like. It 
may consist in some right, interest, profit, or ben- 
efit accruing to the one party, or some forbear- 
ance, detriment, loss or responsibility given, suffered, 
or undertaken by the other. If a person agrees to 
pay a physician for certain professional services, and 
the services are rendered in accordance with the 
agreement, he must pay. He can not avoid the 



13 COMMERCIAL LAW 

obligation on the ground that the services were of no 
value to him, because the physician did that which 
he would not have done but for the promise to pay. 

The consideration, however, need not be ade- 
quate in order to be sufficient in law. Recurring to 
the illustration of the hat ; the hat may have been 
worth five dollars anywhere on the market, yet if 
the merchant had sold it for one dollar, the contract 
would have been exactly as complete and as binding 
on the parties as though he had received five. Ade- 
quacy of consideration, in the absence of fraud, is 
always left to the parties themselves. 

Other Considerations. — In addition to good and 
valuable considerations there are certain other con- 
siderations which are sometimes sufficient and some- 
times insufficient, depending upon circumstances. 
These are moral obligations, promises to do im- 
possible things, and promises to do what a party is 
already bound in law to do. 

A moral consideration or obligation is defined 
to be the duty to perform, voluntarily, a contract 
which is not enforcible in law, or the right to the 
enforcement of which, though having once existed, 
has been lost. A son may incur an obligation which 
he is unable to meet. The circumstances may be 
such that the father is morally, though not legally, 
responsible for the default of his son. Where a son 
is attending school after he has reached his majority, 
he may be unable to pay his tuition fees. The 
father, if he had not promised in advance to pay, 
would not be legally liable, though the moral re- 
sponsibility might be unquestioned. 

Moral considerations are sufficient in many 
cases to support executed contracts, and will fre- 



COMMERCIAL LAW 19 

quently serve as a basis for a new promise, such as a 
promise to pay a debt contracted in infancy or out- 
lawed through the operation of the statute of limita- 
tions ; and it has been held that this moral obligation 
is a sufficient consideration for a new promise to pay 
a debt which has been discharged in bankruptcy. In 
such cases as these the moral duty was once a legal 
duty. 

It is a familiar maxim that the law does not re- 
quire impossible things, and a promise, therefore, to 
do an impossible act would not be a sufficient con- 
sideration. Impossible things are not to be con- 
fused with difficult things. The fact that the per- 
formance of the thing promised is difficult is no 
excuse. 

A promise to do a thing which a person is already 
bound in law to do is not a sufficient consideration, 
and cannot be made the basis of a new undertaking. 
If Jones owes Smith a definite sum of money which 
is due on a certain day, and Smith promises Jones 
that he will give him a hat if he will pay the money 
on the day it is due, then Smith's promise to give 
Jones a hat is without consideration and cannot be 
enforced, because Jones is already obligated to pay 
the money, and if he makes another promise to pay 
it when due, he will only be promising to do what 
he is already legally bound to do. 

SUBJECT MATTER. 

Subject matter is the thing, act, or matter to 
which the contract relates — the thing to be done 
or omitted. It covers the whole field of human 
activity. 

Parties may make contracts on any subject not 



20 COMMERCIAL LA W 

prohibited by law. Gambling contracts, Sunday- 
contracts, and contracts against public policy, as a 
rule, cannot be enforced. 

By gambling is meant betting on horse races, 
at cards, dice, and so on. If a party fails to pay a 
wager, the law will not compel him to do so. If one 
loses on a bet, he may recover the amount lost and 
in some cases a penalty also. The prohibitions 
against gambling are statutory. At common law 
gaming and wagering contracts could be enforced. 

Sunday contracts were not invalid at common 
law. As a rule, the statutes of the different states 
do not expressly prohibit the making of contracts on 
Sunday. That such contracts are embraced within 
the statutory prohibitions against all work, business, 
or labor on the first day of the week has been estab- 
lished by j udicial construction . A contract executed 
on Sunday is usually valid ; but where it is only com- 
menced on Sunday and is to be performed on a later 
date, it is unenforcible. 

Contracts against public policy are such as 
injure the public good, or the government, or are 
contrary to good morals, or affect the freedom of mar- 
riage, or are in restraint of trade, or which tend to 
pervert justice. If a candidate for public office 
were to make a contract to the effect that he would 
share a certain portion of his salary if elected, in 
consideration of something done for him during his 
campaign, such a contract could not be enforced, as 
it would tend to defeat good government. Con- 
tracts to do immoral acts are invalid and the courts 
will not enforce them. It is the policy of the law to 
encourage marriage, and any contract which restrains 
the freedom of marriage is void. An agreement not 



COMMERCIAL LAW 21 

to marry any other than a given person is contrary 
to public policy and, of course, void. 

Though the maxim that competition is the life 
of business has been stoutly denied in recent years, 
it is nevertheless the well settled policy of the law 
not to enforce contracts in restraint of trade. Any 
contract by which a person obligated himself to re- 
frain from engaging in his profession or trade forever 
would be void; but contracts may be made which 
limit the exercise of a trade or profession to a certain 
locality. The restraint may be unlimited as to the 
time, but must be limited as to the place. 

A contract by which one person agrees not to 
prosecute another for the commission of a crime is 
void, as its object is to defeat justice. It is the duty 
of every citizen to assist the state in enforcing the 
law, and contracts which violate this duty in any way 
will not be tolerated. It is essential for the preserva 
tion of the public good that every citizen do his duty. 

KINDS OF CONTRACTS. 

Having seen what the different essential ele- 
ments of contracts are, we pass now to the considera- 
tion of the different classes into which they are 
divided. Usually there are three divisions: con- 
tracts of record, contracts under seal, and simple 
contracts. It seems to the writer, however, that the 
division of simple contracts should be subdivided 
into written contracts not under seal and simple 
verbal contracts. 

Contracts of Record. — Contracts of record are 
those which are pronounced by the courts, such 
as judgments, decrees, and recognizances. They are 
called contracts of record because they form a part 



22 COMMERCIAL LAW 

of the records of courts. They of course come into 
existence only through litigation. There may be a 
dispute between the parties to a contract as to its 
interpretation. If they go to law about the matter, 
the court interprets the contract and the court's 
interpretation becomes then the contract, and being 
recorded as a part of a legal proceeding, is a contract 
of record. 

Contracts Under Seal. — Contracts under seal are 
frequently more technical than sensible. A sealed 
instrument is one which has a seal or a scroll after 
the signature of each of the parties. It is said that 
seals first came into use because men could not write, 
and that each person had his own individual seal 
which he used for his signature. It would seem, 
then, that when the art of writing became general 
that the use of seals should have ceased ; but such 
was not the case. Seals are never used now instead 
of signatures, but only in connection with them. 
There is no very good reason which can be given for 
the continued use of seals. It is claimed by some 
that they add solemnity to contracts. If an instru- 
ment is under seal, the seal is said to preclude the 
party from proving anything contrary to the terms 
of the instrument ; when such would not be the case 
if the seal were not used. The presence of a seal 
also raises the presumption of a consideration, when 
the same words without a seal would have no such 
effect. Usually, however, this presumption can be 
met and overturned where the facts are contrary to 
the presumption. If two contracts are made be- 
tween the same parties and on the same subject, one 
being under seal and the other not, the sealed con- 
tract will govern, on the theory that it is of a higher 



COMMERCIAL LAW 23 

and more solemn nature. The period of limitations 
is frequently longer where the obligation is evi- 
denced by a sealed instrument than where there is a 
simple contract. A sealed contract cannot be 
changed or modified unless the instrument by which 
the change is made is also under seal. 

It used to be next to impossible to successfully 
attack a sealed contract, no matter how different 
the facts may have been from the recitals of the 
instrument ; but during the last half century, courts 
have become much more liberal in this regard and 
much more inclined to look upon sealed contracts 
from a common sense point of view. Where fraud 
has been practiced or a mistake made in making a 
contract under seal, it can always be attacked. 

Written Contracts. — Any contract may be in 
writing. That is to say, there is no legal prohibition 
against reducing any contract to writing. But there 
are some contracts which must be in writing ; other- 
wise they are not valid. The reason for this is the 
Statute of Frauds and Perjuries. It was during the 
reign of Charles II, in 1676, that the English Parlia- 
ment passed an act, the object of which was to pre- 
vent the perpetration of frauds and perjuries. This 
act, either through the enactments of the legislatures 
or the decisions of the courts, has become a law in 
every state in the Union. The acts of the different 
legislatures may vary slightly from each other and 
from the original act of the English Parliament, but 
the law is substantially the same everywhere among 
the Anglo-Saxon people. Inasmuch as the statute 
of frauds is so little understood, a synopsis is here 
given : 

1, No executor or administrator can be 



24 COMMERCIAL LAW 

charged on any special promise to answer any debt 
out of his own estate unless the promise or agreement 
shall be in writing. 

2. No person can be charged upon any special 
promise to answer for the debt, default or miscarriage 
of another person unless the promise is evidenced by 
writing. 

3. No person can be charged upon any agree- 
ment made in consideration of marriage except the 
promise shall be in writing. 

4. All agreements which are not to be per- 
formed within the space of one year from the time 
of the making must be in writing. 

5. All agreements pertaining to land, or which 
concern an interest in land, must be in writing if they 
cover a period of more than one year. 

6. In some cases the sale of goods, wares and 
merchandise for the price of $50.00 or over comes 
within the statute of frauds, unless the buyer shall 
accept and receive a part of the goods, or pay a part 
of the price, or give something by way of earnest 
money to bind the bargain. 

It is not to be understood that the writing re- 
quired in these cases shall be of the highest kind — 
that is, under seal. Any sort of written memo- 
randum will suffice. No formality is required. 
Letters, telegrams, and memoranda of various kinds 
will answer, provided the essentials of the contract 
can be gathered from them. The contract cannot 
be partly written and partly oral. 

Under this statute an executor or administrator 
cannot be held personally responsible for the debts 
of a deceased person upon whose estate he is admin- 
istering unless he binds himself in writing. 



COMMERCIAL LAW 25 

If Jones borrows money of Smith and fails to 
pay it when due, Smith then has the right to sue. 
If at this point a friend of Jones appears and tells 
Smith that, if he will forbear and not sue Jones for a 
certain time, he (the friend) will pay the debt at the 
expiration of the extended time if Jones does not; 
then the friend cannot be held on that promise unless 
it is in writing, it being a promise to answer for the 
debt of another. 

Where a father promises his daughter that he 
will give her a certain wedding present in considera- 
tion of her marriage, the law will not enforce the 
promise unless it is written. 

Contracts for the sale of land or concerning an 
interest in land must be written whenever the 
period covered by the contract is for more than one 
year. Where a landlord makes a lease and the time 
between the date of the making and the date of its 
expiration is more than a year it must be written. 
An agent of a landlord cannot make such a lease un- 
less he has written authority from the landlord. If 
parties enter into a contract which comes within 
the inhibition of the statute of frauds, and they go 
ahead and perform all of the conditions of the con- 
tract, then it is valid, because done, but it is the rule 
that part performance does not take a contract 
out of the operation of the statute. A great many 
leases are made by real estate agents without proper 
authority and under which the lessees could not be 
held. This is one of the most common instances of 
the general ignorance of the statute of frauds. 

While the provisions of the statute of frauds 
may seem arbitrary, the student will find, if he is 
willing to go into the subject more thoroughly than 



26 COMMERCIAL LAW 

is possible here, that they are based upon reason and 
sound business principles. Just one illustration: 
if a person could be held for the debt of another with- 
out any written promise, then considering, the un- 
certainty of verbal agreements and bad memories, 
no one would ever be able to tell what his liabilities 
were. And it checks the tendency to deceive and 
swear falsely, just as the title indicates. 

While contracts under seal are written con- 
tracts, yet the great bulk of written contracts are 
not sealed. They consist of letters, telegrams, and 
such memoranda as are used in business, and a com- 
paratively few contracts regularly made and signed. 

Oral Contracts. — This class of contracts com- 
prises all of those not included in the other three 
classes. They are made up of the minor transactions 
in business which are of daily occurrence. Many 
contracts which as a matter of law ought to be 
written are made orally and are carried out com- 
pletely without any trouble or disagreement. Written 
contracts not under seal and verbal contracts are 
sometimes called parol contracts. 

AFTER THE MAKING. 

When the contract is completed, it remains, if 
executory, to be interpreted, discharged in accord- 
ance with its terms, or broken. The question of 
interpretation may also arise in the case of executed 
contracts; as, for example, the interest conveyed 
by a deed where the language used is not clear. 

Interpretation. — In the interpretation of con- 
tracts, words are given, whenever possible, their 
ordinary, every day me*aning. The language used 
need not be grammatical. The meaning is the 



COMMERCIAL LA W 27 

principal thing. The law looks through the form 
and sees the substance. 

In most cases contracts are carried out without 
difficulty, but when a dispute does arise, neither 
party will be allowed to say that he did not intend 
what the language used would properly mean. 
Where the contract is in writing, oral evidence can- 
not be heard to vary its terms. But if the writing 
contains an ambiguity, then oral evidence may be 
resorted to for the explanation of that portion of it. 
Likewise where one of the parties is foreign and does 
not understand our language, or is ignorant and 
cannot read and write, oral testimony may be heard 
on behalf of such party. 

If a party enters into a contract which is con- 
trary to law, he cannot plead ignorance. Ignorance 
of the law excuses no one. Every one is presumed 
to know the law of his own country, and this pre- 
sumption is conclusive — that is, cannot be denied. 
Exceptions are often made to this rule in cases of 
foreigners, as people are not chargeable with a knowl- 
edge of the laws of countries other than their own. 

If a contract is valid where made, it is valid 
everywhere; if void where made, it is void every- 
where. It is lawful to sell liquor at retail in Illinois, 
but unlawful in Kansas. If a note is given in Illinois 
for liquor sold at retail, and the parties subsequently 
move to Kansas, the payee in the note may sue the 
maker in Kansas and recover, the consideration for 
the note being a legal one at the place where the con- 
tract was made. But if the note is given for liquor 
sold in Kansas, no recovery can be had either in 
Kansas or Illinois, the consideration being ill gal. 

Discharge. — Contracts may be discharged by 



28 COMMERCIAL LAW 

mutual agreement, by performance, by payment, 
by operation of law, or through the thing to be done 
having become impossible. 

It often happens that the parties to a contract 
for one reason or another may desire not to carry 
out its terms, and if this desire is mutual they may 
abandon the undertaking. The most usual method 
of discharging a contract is performance. It is only 
comparatively few that are broken. 

A contract may be discharged through the oper- 
ation of law. A promissory note which is not re- 
newed and on which no payments have been made 
is outlawed in Illinois in ten years. The statute of 
limitations is frequently different in different states, 
but there is a limit of time within which all actions 
must be brought. This time limit is always longer 
where the contract is a written one than where it is 
simply verbal. An ordinary account which is not 
evidenced by any writing, such as a merchandise ac- 
count, is outlawed in Illinois in five years. The 
period of limitations is apt to be longer in the older 
and more thickly settled states than in the newer 
and more sparsely settled ones. The legislatures 
of the newer states have frequently invited immigra- 
tion by passing laws under which debtors could find 
speedy and easy relief. 

Where a contract calls for money, the matter of 
discharge is simple enough through payment. Most 
contracts of record can only be discharged through 
the payment of money which must be legal tender. 
Payment is sometimes made by the giving of a 
promissory note, but whether the note shall be con- 
strued as payment depends upon the intention of the 
parties. A note may be simply evidence of the ob- 



COMMERCIAL LA W 20 

ligation and amount merely to an extension of time. 
The opinion prevails among some that the tender 
of money, where the amount tendered is equal to 
the amount called for by the contract, is a discharge 
of the obligation, but this is not the law. The mak- 
ing of a legal tender of the amount due simply stops 
the running of interest and makes it impossible for 
the creditor in the event of suit to charge the debtor 
with the costs of the pro eeding. In other words, 
the creditor could only recover at his suit the amount 
tendered, without interest and without costs. 

If a person makes a contract to sell, at a certain 
future date, a fine painting, and the painting is de- 
stroyed by an earthquake before the day set, then 
the contract is discharged through the impossibility 
of its performance ; it being a rule of law, as we have 
seen, that impossible things are not required. 

Breach. — Business troubles and litigation arise 
from broken contracts. There are three remedies 
to which injured parties may resort, in accordance 
with the circumstances surrounding each case. If 
a merchant makes a contract with a purchaser by 
which he is to deliver certain goods at a future date 
and he fails to deliver them, then he has broken the 
contract. The purchaser has the right to sue him 
for damages and the measure of his damages ; that is, 
the amount which he can recover from the merchant 
will be the difference between the price which he 
agreed to pay the merchant and the price which he is 
obliged to pay to get the goods from some one else. 
If he were unable to get the goods of another, and 
his business were consequently injured on that ac- 
count, there might be another element of damages 
to be taken into consideration. This is the ordinary 



30 COMMERCIAL LAW 

method which is usually followed where a contract 
has been broken. 

Where the merchant has made a contract for 
the delivery of a particular kind of goods which are 
not sold by another person, then if he refuses to de- 
liver the goods according to his contract, the pur- 
chaser may file a bill for specific performance. The 
other remedy described above would not be adequate 
in a case of this kind, as the purchaser could not get 
the goods of any one else. If the purchaser suc- 
ceeded in maintaining his bill for specific perform- 
ance, the court would decree that the merchant 
should deliver the goods in accordance with his con- 
tract. 

The other method is by injunction. Where 
parties have contracted not to do a certain thing, 
and one of the parties is threatening and attempting 
to break the contract by doing the thing which they 
had agreed not to do, then the other may file a bill 
for an injunction and restrain him. This example 
is given as an illustration of a remedy pertaining to 
contracts and not as a definition of injunctions, as 
the field covered by injunctions is very broad. 

FRAUDS. 

One of the principal things to be guarded against 
in the making of contracts is fraud. Fraud is a false 
representation of a fact, made with the knowledge 
of its falsehood or in reckless disregard as to whether 
it be true or false, with the intention that it should 
be acted upon by the party to whom it is made. 
When relied upon and acted upon by the party to 
whom it is made, the contract is fraudulent. 

The party injured or defrauded may ratify the 



COMMERCIAL LAW 31 

contract after discovering the fraud and then sue for 
and recover whatever damages he may have sus- 
tained on account of it. If he does not choose to 
ratify the contract, he may rescind and return what- 
ever he may have received and demand the return to 
him of whatever he may have given, thus nullifying 
the contract. This returning of whatever has been 
received is called placing the party in statu quo — 
that is, placing him in the same position he occupied 
before the contract was made. Where the guilty 
party refuses to return what he has received, then 
the court will compel him to do so, provided the 
complaining party has placed him or offered to place 
him in statu quo. Whoever desires to rescind a 
fraudulent contract must do so within a reasonable 
time after the discovery of the fraud. He cannot 
sleep upon his rights. 

The misrepresentation, to be fraudulent, must 
be made not only with a knowledge of its falsehood, 
but must relate to some present or past fact and not 
to any matter of opinion or future occurrence. The 
intention to deceive must also be present and the 
other party must have relied upon the false repre- 
sentation. The making of an untrue statement may 
be simply a mistake and therefore not fraudulent. 
Where all the parties to a contract are equally guilty 
of fraud, there is no relief for any of them. Only 
the innocent can find redress. Whoever comes into 
court and complains of fraud, must do so with clean 
hands. 

The subject of contracts is most important and 
one to which the student cannot give too much at- 
tention. Contracts are the subject matter not only 



32 COM M ERCI AL LAW 

of business but of almost all legal " proceedings. 
Their variety is without end and their field unlimited. 
They may either be expressed in exact terms or 
partly expressed and partly implied from the con- 
duct of the parties ; and sometimes, wholly implied. 
As an illustration of the vast field covered by con- 
tracts, it might be said that there is a contract 
between every person who has arrived at the age of 
discretion, on the one side, and the state, that is the 
community, on the other, that the laws of the land 
shall be upheld and obeyed. In this case the citizen 
and the state are the parties, and if the citizen com- 
mits a crime, he is breaking an implied contract be- 
tween himself and the state that he will obey the 
law. The contract being broken, the state then 
has the right to proceed against him and to punish 
him. 



Review Questions. 

I. Name the four classes into which law is divided. De- 
fine natural law; moral law; international law; municipal law. 
Of what is municipal law constituted? How many kinds of 
municipal law are there? Define common law; statutory law. 
How is common law preserved? What is the fundamental 
law of the United States, and in every state? If a legislative 
power enacts laws which are unconstitutional, what will hap- 
pen? With what is law chiefly concerned? What is a right? 
What is a duty? Does a right on one hand imply a duty on 
the other? What are the principal divisions of rights? What 
are the rights of persons? What are the rights of things? 
What are property rights ? 

II. Upon what are business transactions based? What 
are the essential elements of a contract? What are the legal 
disabilities which apply to contracting parties? What are 
mental disabilities? Define infancy. What contract may an 
infant make that will be binding upon him, and what con- 
tracts are not binding upon him? Are contracts made by 
infants void or voidable? May an infant ratify his voidable 



COMMERCIAL LAW 33 

contract after he reaches legal age? Can any one other than 
the infant himself set up his infancy as defense? How does 
the law look upon infancy ? 

III. What were the rights of a married woman under 
common law? Could she make contracts? Under what cir- 
cumstances could she bind herself or her husband by her con- 
tracts? How have modern legislative acts affected the rights 
of married women? May a married woman now sue or be 
sued as though she were single? Does any property which she 
may have at the time of her marriage continue to be her sepa- 
rate property after marriage ? May she acquire and hold prop- 
erty separate and apart from her husband ? 

IV. Define a lunatic. May a person who is insane make 
valid contracts on subjects not affected by his insanity? Can 
a lunatic make a valid contract during his lucid intervals? 
What does the law presume as to the sanity of every person? 
If an insane person makes a contract during his insanity, what 
may he do as to that contract after he regains his reason ? Un- 
der what circumstances will a lunatic be bound by his contracts ? 
If a merchant sells an artic 1 e of necessity to a lunatic, infant or 
idiot for an unreasonable price, can he recover the unreason- 
able price? Will the law substitute anything instead of the 
unreasonable price, and if so what? 

V. Define idiocy. By what contracts may an idiot be 
bound? What is meant by intoxication? Where one is com- 
pletely intoxicated can he make a valid contract? Will the 
slight intoxication of one of the parties affect the contract? 
For whom are conservators appointed? 

VI. What is meant by spendthrift? How is the property 
of a spendthrift usually controlled ? After a conservator has been 
appointed for a spendthrift, can he make a binding contract? 
May an infant avoid punishment for his criminal acts through 
his infancy ? 

VII. How do parties usually make an agreement? May 
an offer be made and accepted verbally? May they be made 
and accepted in writing ? May a person accept an offer without 
ever speaking or writing on the subject, and if so, how? If 
an acceptance is procured under duress will it be binding? If 
an acceptance is secured by fraud, will the contract be good? 
If the parties make a mistake in the facts, what happens? 

VIII. What is meant by consideration? Give example. 
What are the two kinds of consideration ? What are good con- 
siderations? What kind of contracts will good considerations 
support ? What is an executed contract ? What is an executory 
contract? Will a good consideration support executory con- 
tracts? 



34 COMMERCIAL LAW 

IX. What is meant by valuable consideration? Of what 
may valuable considerations consist? What is meant by ade- 
quacy of consideration? Will an inadequate consideration 
bind a contract? What are moral obligations? Will moral 
obligations support contracts? Will a promise to do an im- 
possible thing be a sufficient consideration? Will a promise 
to do a thing that the promisor is already legally bound to do 
be sufficient consideration for the making of a new contract? 
If the thing promised is difficult, will that make any difference? 

X. What is subject matter? On what subjects may 
parties make contracts? What kind of contracts will the law 
refuse to enforce? Are gambling contracts enforcible? Were 
they enforcible at common law? Are Sunday contracts valid? 
Were they valid at common law ? What kind of Sunday con- 
tracts are valid? If a person who is a candidate for office 
makes an agreement with a friend to the effect that he will 
share a portion of his salary, if elected, in consideration of 
assistance received during his campaign, will the agreement 
be binding? Give reasons. If a person makes a contract not 
to marry any other than a given party, will the contract be 
binding? Will the law enforce contracts in restraint of trade? 
May a person make a binding contract under which he agrees 
to refrain from engaging in his trade forever ? Are agreements 
not to p osecute criminals valid ? 

XI. Name the different classes into which contracts are 
divided. What is a contract of record? What is a contract 
under seal? Tell something of the history of s aled instru- 
ments. What does a seal import? How does the law look 
upon sealed contracts as compared with earlier times? When 
may a sealed instrument be attacked ? May all contracts be in 
writing if the parties so desire? What contracts must be in 
writing? What is the Statute of Frauds and when did it come 
into existence? Give synopsis of Statute of Frauds? What 
kind of writing is required under the Statute of Frauds? If 
A promises to pay B's debts, how can A's promise be made 
binding? If a father promises his daughter a piano when she 
marries, under what circumstances can he be held to his promise ? 
Can land be leased for a longer period than one year unless the 
lease is in writing? Give reasons for Statute of Frauds. What 
are the benefits that come from it ? How are most written con- 
tracts made ? What are parol contracts ? 

XII. In the interpretation of contracts are words given 
their ordinary meaning? If the language is bad, and the words 
misspelled, will it make any difference? How does the law 
look upon such things? If the language of a contract is plain, 



COMMERCIAL LAW 35 

will a party to it be allowed to say that he did not intend what 
the words used would properly mean? May the terms of a 
written contract be varied by oral evidence as a rule? Give 
examples. If a party enters into a contract which is contrary 
to law, can he plead ignorance? Is everybody chargeable 
with the laws of his own country? Are foreigners chargeable 
with the laws of our country? If it is unlawful to sell liquor 
in Kansas, and lawful in Illinois, can a liquor contract made 
in Illinois be enforced in Kansas ? Give reasons 

XIII. Give the different methods by which contracts 
may be discharged. Give example of a contract discharged 
by operation of law. Give example of a contract discharged 
through the performance having become impossible. May 
contracts be discharged through giving a promissory note? If 
A owes B one hundred dollars, and A tenders the money to B, 
and B refuses it, will the obligation be discharged? If B after- 
wards sues, what will be the result? Where one party has 
broken his contract, what may the injured party do? If he 
sues what will be the measure of his damages? If a contract 
is for the delivery of certain kinds of goods which cannot be 
obtained from anyone other than the person with whom the con- 
tract is made, what may the injured party do? When may the 
injured party get an injunction ? 

XIV. What is fraud? When is a contract fraudulent? 
What may the injured party to a fraudulent contract do? 
What is meant by statu quo? If both parties are equally 
guilty of fraud can either get relief? If the injured party waits 
an unreasonable time after the discovery of fraud, does he 
lose his rights? 



II. 

PARTNERSHIPS. 

Generally a partnership may be said to exist 
where two or more persons join together their money, 
goods, labor or skill for the purpose of trade or gain ; 
and where the profits and losses are divided in a 
certain proportion. 

But there are perhaps no tests by which it can 
be determined with absolute certainty what con- 
tracts will create the partnership relation. That 
there shall be a division of profits seems, under the 
weight of authority, to be the essential element. In 
fact, it is said that this is the essence of the contract. 
But in order that a person may be a partner, he 
must be interested in the profits as profits, and not 
simply as a means of compensation for his services. 
And it is most usual for the partners to stand the 
losses and share the profits on a certain agreed basis. 

HOW FORMED. 

Partnerships are contractual. The contract 
may be either written or oral. If written, it need 
not be under seal. Any writing from which the in- 
tention of the parties can be gathered will suffice. 
Where the business to be engaged in is of importance, 
it is customary for the parties to enter into a written 
agreement, called articles of copartnership. In 
this way the names of the partners, the interest of 
each, the duration of the contract, and the terms 
upon which the business is to be transacted, are 
specified in writing, and being thus preserved are less 



COMMERCIAL LAW 37 

liable to cause disputes than when oral. Verbal 
contracts of partnership, however, are just as bind- 
ing as those in writing. The difficulty comes in 
proving their terms in cases of dispute. 

In the making of partnership contracts, as in 
all others, the parties should be careful not to get 
within the inhibition of the statute of frauds. For 
this reason partnership contracts for the purpose of 
buying and selling land should always be in writing. 

Implied Partnership. — The partnership relation 
may be implied from the acts of the parties without 
any formal contract either written or oral. This 
is especially true with reference to third persons — 
that is, persons who are not interested in the partner- 
ship as such — while as between the parties them- 
selves, their intentions as to their relations will 
usually govern. Where persons carry on business 
in such a manner as to lead a prudent man to be- 
lieve they are partners, then as to him they are 
partners and are liable as such whether they in- 
tended it or not. 

KINDS OF PARTNERSHIPS. 

Partnerships are either full or limited. 

In full partnerships all the partners share in 
the profits of the business and are liable personally 
for all partnership debts. They are the most com- 
mon. 

Limited partnerships are like corporations in 
that the partners (save one or more general partners) 
are liable only for the amount invested in the busi- 
ness. They are creatures of statutory law, which 
is technical and difficult to comply with. If the 
parties fail to comply with the letter of the law, 



38 COMMERCIAL LAW 

they are held to be full partners in their dealings with 
third persons. For this reason limited partnerships 
are not numerous, most business men preferring to 
incorporate. The word " limited" usually follows 
the name of a limited partnership, and serves as a 
notice to the public of the character of the partner- 
ship. 

The general partners of a limited partnership 
are liable as in cases of members of full partnerships. 
Under the statutes of all the states there must be at 
least one or more general partners in every limited 
partnership. The limited or special partners usually 
do not exceed six. 

It requires great care and caution to success- 
fully organize and carry on a limited partnership, 
and persons undertaking it should always consult a 
lawyer. 

KINDS OF PARTNERS. 

Partners are divided into four classes: real, 
silent, nominal, and special. 

Real partners are those who are known to the 
world as such and who take an active interest in the 
^ conduct of the business. They are sometimes called 
ostensible partners. One or more of their names 
frequently appear as the style of the firm ; as Jones 
& Smith, where Alex. Jones and John Smith are the 
partners ; or as Jones, Smith & Co., where Robertson 
is also a member. Almost any style of firm name 
can be used which is satisfactory to those in interest. 

A silent, dormant or concealed partner is called 
such from the fact that he is concealed from the 
public. Though he does not appear so to the world, 
he is in fact a partner. He shares in the profits of 
the business and at the same time avoids personal 






COMMERCIAL LAW 39 

responsibility in the event of the firm's failure, unless 
his interest is discovered, in which case he is liable 
to creditors as a real partner. His success as a 
silent partner depends upon his concealment. 

A nominal partner is one who allows himself to 
be known as a partner, but who in reality is not. He 
is a partner as to third persons, but not as to the 
members of the partnership. He has no actual 
interest in the business and does not share in the 
profits. He is liable for the debts of the partner- 
ship, in the event of insolvency, because he holds 
himself out to the world as a partner; it being the 
rule that persons are presumed to be what they pre- 
tend to be. Well known and established business 
men oftentimes allow their names to appear as part- 
ners after they have retired and have no further in- 
terest in the business of a firm. In such cases they 
should be sure that those to whom the management 
of the business is entrusted are reliable and that 
the chances of failure are remote. 

Special partners are those members of limited 
partnerships whose liability is limited. They are 
often called limited partners. Sometimes their 
names appear on the firm's stationery as limited or 
special partners. As a rule they are not allowed to 
carry on the business of the firm. They are never 
concealed, however, as the laws of all the states re- 
quire that there shall be public records of all limited 
partnerships, showing the names of all the partners, 
both general and special, and the amount which each 
special partner contributes to the assets of the enter- 
prise. These- records are kept in the county where 
the concern has its place of business, 



40 COMMERCIAL LAW 

PARTNERS AND THEIR DUTIES. 

Partnership contracts are governed by the same 
rules as other contracts, and any one capable of 
making a valid contract may be a partner. If per- 
sons under disabilities enter into partnership con- 
tracts, the rule pertaining to disabilities will apply. 
Thus if an infant becomes a partner, his contract 
will be voidable. 

The partnership relation is based upon con- 
fidence, and it is the duty of the partners to exercise 
the utmost good faith in their dealings with each 
other. Each should give his time to the business in 
accordance with his agreement, and every member 
is entitled to know the details of the firm's affairs, 
and to have a full accounting from the other mem- 
bers. 

If one partner is guilty of misconduct in refusing 
to disclose the details of a transaction pertaining to 
the partnership business, the other partner may file 
a bill in chancery and compel him to give a full ac- 
counting. As a rule suits at law will not he between 
partners where partnership affairs are involved. 
The reason for this is that if one partner were to sue 
a partnership of which he was a member, he would 
in this way be suing himself. It is only in courts of 
chancery where ru es of practice are more pliable, 
that partnership entanglements can be straightened 
out. The court has power to appoint a receiver 
where the facts warrant it. 

Where there is no agreement to the contrary, 
each of the partners has an equal voice in the man- 
agement of the business. This is so though the in- 
terest of one partner may be very small. It is un- 
like a corporation in that the voice of a stockholder 



COMMERCIAL LAW 41 

in a corporation is measured by the amount of stock 
which he owns. 

Partners may divide the profits among them- 
selves in proportion to the amount invested by each, 
or in proportion to the amount invested and the 
time given to the business by each. They may 
make, also, any agreement which is satisfactory to 
themselves, and which is not tainted by fraud. In 
some cases where one partner gives more time than 
another, he is allowed a salary in addition to his 
share of the profits. In other cases where a partner 
gives a great deal of time, and only invests a small 
amount of capital, an arrangement may be made by 
which he is to share in the profits without being 
obliged to stand any of the losses. 

POWERS AND LIABILITIES. 

When a partner is acting within the scope of the 
partnership business, his acts are binding upon the 
other partners. In other words, the act of one is the 
act of all. If, however, a partner goes outside of 
the partnership business, he alone is liable for his 
acts. 

A partner may buy and sell goods if within the 
scope of the partnership, may sign checks, notes, 
drafts, and so on, and the entire firm will be bound. 
The only test is : Was his act within the apparent 
scope of the partnership ? 

Courts have held in some cases that where a 
partner signs his own name to a note, instead of the 
name of the firm, that he alone is liable for the note, 
even though the proceeds are used in the partner- 
ship business. 

Where a partnership becomes insolvent it is a 



42 COMMERCIAL LAW 

rule that the creditors must exhaust the assets of 
the partnership before resorting to the individual 
property of its members. After the partnership 
property has been exhausted, the partners are re- 
sponsible to the full extent of their personal assets. 
This is what makes partnerships dangerous and 
affords, perhaps, one of the strongest reasons for 
incorporating. 

Where an individual member of a partnership 
fails in his personal affairs, it is a rule that his creditors 
must exhaust his individual assets before resorting 
to his share in the partnership. 

Where one partner transacts business for the 
firm, he is in reality an agent for the other partners, 
and this is the legal reason why they are bound by 
his acts. 

DISSOLUTION. 

Partnerships may be dissolved by agreement, 
by order of court, by acts of the partners, or the 
death of one of them, and by operation of law. 

Those who have entered into a partnership 
agreement are, of course, allowed to abandon it at any 
time they may desire, providing their wishes in that 
respect are mutual. One partner may, of course, 
dissolve the partnership without the consent of the 
others, but his act in so doing may make him liable 
for any damages which his copartners may sustain. 
If one partner assigns his interest to another partner, 
this amounts to a dissolution. Where one partner 
has been guilty of misconduct, the others may apply 
to the courts for a decree dissolving the partnership. 
Misconduct may consist in keeping fraudulent ac- 
counts, in a misappropriation of the firm's money, 
the exclusion of one partner from participation in the 



COM M ERCI AL LAW 43 

management of the firm's business, gross violations 
of good faith, habitual drunkenness, or any miscon- 
duct which injures or endangers the business. If it 
turns out that one of the partners is unable to per- 
form his part of the contract, this will work a 
dissolution. 

Partnerships are said to be dissolved by opera- 
tion of law where one of the parties has become 
insane or dies, or where the firm has been thrown 
into bankruptcy, or its asset sold under execution. 

After a partnership has been dissolved it never- 
theless is considered in law as being in existence a 
sufficient length of time to wind up its affairs. A 
surviving partner may sell the as.ets, collect money 
due and otherwise carry on the business with a view 
of winding it up as speedily as possible. 



Review Questions. 

L Define a partnership What is usually considered 
the essential element of a partnership? What is meant by 
participation in the profits as being an element of a partnership 
relation? Are partnerships contractual? Should they be 
written or oral? What are the advantages of written articles 
of copartnership? What are the disadvantages of oral agree- 
ments? What articles of copartnership must be in writing? 
Give reasons. Are verbal partnerships as binding as any 
other? What are implied partnerships? Who are third per- 
sons? When and under what circumstances will the intention 
of partners govern as to their relations? When are third per- 
sons justified in believing that persons engaged in the business 
are partners ? 

II. Name the different kinds of partnerships. What is 
a full partnership? What is a limited partnership? Name 
two classes of partners in a limited partnership? What is the 
difference between these two classes? Under what laws are 
limited partnerships formed? 

III. Name four classes into which partners are divided. 



44 COM MERC I AL LAW 

Who are the real partners? What is the other name for real 
partners? Tell something of the firm names of partnerships. 
Who are silent partners ? By what other names are they called ? 
What are the rights of a silent partner? What does he avoid? 
When is he liable to creditors? Upon what does his success as 
a silent partner depend? Who are nominal partners? Are 
they liable to creditors of the partnership in the event of in- 
solvency? Give reasons for your answer? Why do persons 
allow their names to be used in connection with partnership 
business when they are not actually interested ? Who are special 
partners ? How are their liabilities measured ? Is their identity 
ever concealed? What does the law require of limited partner- 
ships, which is not required of full partnerships? 

IV. Do the same rules apply to partnership contracts as 
to other contracts? If an infant, or any other person under 
disability enters into a partnership contract, what is the result? 
Upon what is the partnership relation based? What are the 
duties of partners towards each other? What are the rights 
of partners in regard to a knowledge of the details of the firm's 
business? If one partner conceals things from the others, what 
can they do? When can one partner bind the others by his 
acts? Give reasons. If a partner acts outside of the partner- 
ship business, will his acts be binding upon the firm? When 
can individual assets of partners be taken to satisfy the firm's 
debts? When can a partner's interest in a firm be taken to 
satisfy his individual obligations? If one partner is guilty of 
misconduct, what remedy has the other partners? Give 
instances of misconduct of a partner. 

V. How may partnerships be dissolved? Name the 
different things which will work a dissolution of partnership. 
May partners if they so desire dissolve at any time? What is 
the effect of inability to perform? If one partner assigns his 
interest to another, does this amount to a dissolution? What 
effect does death have on partnerships? When is a partner- 
ship said to be dissolved by operation of law? After dissolu- 
tion of partnership, what may the surviving partner do as to 
the partnership affairs? 



III. 

CORPORATIONS. 

A corporation is a creature of the law. It is 
an artificial legal person. One of the most often 
quoted definitions is that it is an artificial being, 
indivisible, intangible, existing only in contempla- 
tion of law. 

Though the persons composing a corporation, 
such as its officers, directors, and stockholders, may 
die or change, the coporation continues forever, or 
until he expiration of its charter by legal process 
or otherwse. This pe petual succession is one of 
the chief features of co porations, and one of the 
things which make th m attia tive from a business 
point of view. 

Another important feature is that with certain 
exceptions he tockholders are only liable for the 
amount they actually invest. In this way a person 
may engage in an enterprise and know at the com- 
mencement that his liabilities are definitely limited, 
while in a partnership the different partners are 
liable to the full extent of their individual assets, 
after the assets of the partnership have been ex- 
hausted. 

CLASSES OF CORPORATIONS. 

Corporations may be divided generally into two 
classes: those for pecuniary pro-fit, and those not 
for pecuniary profit. 

Corporations for pecuniary pront include all 
such as are engaged in business and whose objects 
are commercial gain. 

45 



46 COMMERCIAL LAW 

Corporations not for pecuniary profit are made 
up of public or municipal bodies, religious organiza- 
tions and charitable institutions. Cities, villages, 
churches, schools, and the like come within this 
class. 

Where the object of the corporation is financial 
gain, it is customary to issue stock, and the holders 
of stock, or stockholders, receive shares in propor- 
tion to the amount invested by each. The stock- 
holders are the controlling power of the organiza- 
tion. Corporations not for pecuniary profit do not 
issue stock, there being no necessity for it. They 
have officers, managers or trustees, the same as 
other corporations, but instead of stockholders they 
simply have members. 

OTHER CLASSIFICATIONS. 

Other classifications of corporations are fre- 
quent. They may be sole, aggregate, public, quasi, 
private, close or open. There are other divisions, 
but usually they will come under a subdivision of 
some one of those mentioned. 

Where a corporation consists of a single person, 
it is said to be sole. The object of such a corpora- 
tion is to give the person legal capacities and ad- 
vantages, particularly that of perpetuity, which 
otherwise would be impossible; some of the digni- 
taries of the Church of England are incorporated 
and in this way have perpetuity in their successors. 
Now and then it happens that a minister is incor- 
porated as such, and then the parsonage lands be- 
long to the corporation, no matter who the individual 
minister may be. In some states one person may 
incorporate for business purposes, but in most states 
at least three are required. 



COMMERCIAL LAW 47 

Any corporation composed of more than one 
person is an aggregate corporation. Whether a 
corporation is sole or aggregate, is simply a question 
of membership. 

A public corporation is one which has to do 
with the public or political business of the com- 
munity. Cities, counties, and the like are public 
corporations. City corporations are often called 
municipal corporations. 

School districts, commissioners of highways, 
and other organizations of this kind are called quasi 
corporations. They may sue and be sued and ex- 
ercise certain other corporate functions, but they 
do not pass ordinances. 

Private corporations are usually such as are 
formed by private enterprise and for business pur- 
poses, and are the most numerous. But religious 
corporations are often classed as private. Private 
corporations may, therefore, be either religious or 
lay, and lay corporations may be further divided 
into charitable or civil. Colleges and -hospitals are 
charitable. Civil corporations are the great body 
whose object is business and money making. 

A close corporation is one in which a few of 
those interested are allowed to select the officers and 
manage the affairs of the concern. 

An open corporation is one w T here all the parties 
in interest have a vote in the election of officers and 
the management of affairs. 

CHARACTERISTICS. 

Perhaps it may be said that the chief object of 
corporations is to bestow the character and qualities 
of individuality on a collective and ever changing 
body of men. 



48 COMMERCIAL LAW 

A corporation may transact business in its 
corporate name, may sue and be sued in its corporate 
name, and all this without the use of the names of 
either of the officers, directors, managers or stock- 
holders. The name of the corporation is as much 
the name of a person in law as the name of an ordi- 
nary individual. 

HOW ORGANIZED 

Whenever it is proposed to organize an ordinary 
business corporation, it is necessary to make appli- 
cation to the Secretary of State or other proper 
officer. There was a time when corporations were 
organized by special acts of the legislature, and this 
sometimes happens even yet, but it is unusual. 
Practically all of the states of the Union have passed 
laws relating to corporations of different kinds, 
under which organizations may be perfected through 
application to the specified officers. The applica- 
tion should contain the following : 

1. Names and residence of the incorporators. 

2. The name of the corporation. 

3. Object and purpose. 

4. Principal place of business. 
5 Amount of capital stock. 

6. Number of shares into which the capital 
stock is to be divided and the amount of each share. 

7. Number and names of trustees, directors or 
managers who shall carry on the business of the con- 
cern for the first year. 

The name of the corporation must be one not 
in use by any other corporation of the same state. 
Thus a charter will not be granted to two different 
bodies of men under exactly the same name. This 



COMMERCIAL LAW 49 

is a necessary rule, as any other proceeding would 
lead to endless confusion. 

It is usually necessary for the incorporators to 
give their names and residences, as in some states 
residence is required before a charter will be granted. 

The object and purpose of the corporation 
should be stated definitely and carefully. A cor- 
poration, as a creature of the law, is limited in its 
field of operation. A corporation organized for the 
purpose of manufacturing and selling boots and 
shoes could not legally engage in the dry goods busi- 
ness. If it did so, its actions in so doing would be 
ultra vires — that is, beyond its power ; not within the 
things prescribed by its charter. Various sorts of 
complications and troubles arise from acts of cor- 
porations which are ultra vires. Corporations may 
engage in any enterprise permitted by statute. In 
some states they are not allowed to buy and sell real 
estate as a business. 

In some states the amount of capital stock that 
a corporation may issue is limited, while in others 
it is not. The best rule is to fix the amount of the 
capital stock at about the value of the assets of the 
corporation. When the amount exceeds the assets, 
it is said to be "watered stock." If the capital is 
very large there are liable to be heavier taxes, as 
many of the states have a system of taxing the capital 
stock of corporations. Then again, the liabilities 
of the stockholders are greater where the capital 
stock is large. In every state in the Union, a stock- 
holder is at least liable to the creditors of the com- 
pany for any amount that may be unpaid upon the 
stock for which he has subscribed. To illustrate: 
i a stockholder subscribes for one share of stock of 



50 COM M ERC I AL LAW 

the par value of $100.00 and only pays $10.00 on 
account of his stock, then in the event of the cor- 
poration becoming insolvent, he is personally liable 
for the balance due on his stock. In some states he 
would be liable or the whole amount of his stock 
unless it was fully paid. In others, he would be 
liable for twice the amount, and there are still other 
rules in other states. The only cases where a stock- 
holder is not individually liable is where his stock 
is fully paid up and non-assessable. 

The amount of the shares usually varies from 
$1.00 to $100.00. There are max mum and mini- 
mum limits, varying in different states. 

It is necessary to state the names of the direct- 
ors, trustees or managers who are to manage the 
affairs of the corpo ation for the first year, in order 
that there may be on reco d somewhere a list of the 
persons to whom communications can be sent. In 
nearly all states there are numerous requirements 
which corporations have to meet, and notice is always 
given to officers or managers. Persons dealing with 
corporations are always allowed access to these 
public records. 

When the application of the incorporators has 
been passed upon and approved by the proper 
officer, a certificate of incorporation is issued. It is 
customary for this certificate to be filed for record 
in the county where the corporation has its principal 
place of business. After this, the corporation is fully 
organized and can proceed to business. The di- 
rectors or managers usually elect officers, such as 
president, secretary, and treasurer. 

Where the object is not pecuniary, the applica- 



COMMERCIAL LAW 51 

tion for a charter of course need not contain any 
provision as to capital stock. 

Corporations of all kinds must have officers and 
directors or managers. The directors or managers, 
the number of whom is regulated by the statutes of 
the different states, are chosen by the stockholders 
or members. Directors and officers need not 
always be stockholders, though some states re- 
quire it. 

H GROWING INFLUENCE. 

Private or business corporations are branching 
out more and more into almost every field of in- 
dustry. There is hardly a line of business in which 
they are not engaged. Where a corporation is or- 
ganized for the purpose of buying up the stock, and 
controlling the business of other corporations, it is 
commonly called a ''trust." In many of the states 
corporations cannot own the stock of other corpora- 
tions, but in a few of them there are no such pro- 
hibitions, and it is in these states that the so-called 
trusts have flourished. 

Banking and trust companies often act in the 
capacities of executors, administrators, trustees, 
and so on. As a rule, they give more satisfactory 
service in this line of business than individuals. 
Corporations not being subject to na ural death as 
individuals, there is no danger of trouble or compli- 
cations arising out of the death of a trustee or ad- 
ministrator where a trust company is acting. The 
same corporation may do both a banking and trust 
business where its charter so provides. 

POWERS OF CORPORATIONS. 

Corporations can only do what they are per- 
mitted to do by their charters. The fact that powers 



52 COMMERCIAL LAW 

to do certain things are enumerated in their charters 
means that other powers are excluded. But a cor- 
poration as a legal person has certain implied powers 
which are necessary for its very existence, and 
whether its charter recites the fact or not, it is one 
of its inherent characteristics that it has succession 
even though its members change. It may also sue 
and be sued and buy and sell in its corporate name. 
It may purchase and hold such land and chattels as 
are necessary to carry on its business. It has the 
right to make rules and by-laws for the government 
of its members and to appoint officers and agents to 
carry on its business in various places. 

It will be seen that as a corporation is intangible 
and exists only as a creature of the law, its business 
is necessarily carried on by agents. Even the presi- 
dent and board of directors of a corporation are only 
agents. It is their duty to carry on the business of 
the concern in the interest of the stockholders. 
While the majority of the stockholders have the 
power to name the officers and directors of a com- 
pany, a single stockholder may not have the right to 
transact business for the company even as an agent. 
It is usual to have regular officers and agents who 
have certain well defined duties, and if the stock- 
holders find that their agents and officers are not 
fulfilling their duties, they have the right to remove 
them and select others in their places. 

Directors of a corporation occupy a position of 
trust. They must exercise good faith in the dis- 
charge of their duties. They cannot use their posi- 
tions for their own personal benefit. If they do so, 
their actions may be fraudulent and therefore void- 
able. The directors are personally liable to the 



eOMMERCI AL LAW 53 

stockholders where they have been guilty of fraud, 
malfeasance or gross negligence. 

A corporation through its officers may make 
contracts the same as an individual. It is usual for 
the president and the secretary to sign contracts 
made by a corporation, but other officers or agents 
may be designated and their actions in making con- 
tracts will be binding. Corporations are responsible 
for the acts of their agents when the agents are 
acting within the scope of their authority. 

Corporations have no exemptions under the law 
and in some states cannot set up usury as a defense. 
If a corporation allows a creditor to obtain judgment 
against it, its affairs may be wound up by the ap- 
pointment of a receiver. 

RECORDS AND STOCK. 

Every corporation should keep an accurate 
record of its organization, its stockholders, election 
of directors and officers, its meetings of stockholders 
and directors and the issue and transfer of its stock. 
Most people are liable to be careless about such 
things, and it is through carelessness of this kind that 
great losses often occur. It is often said that a cor- 
poration speaks by its record, and if its record is 
complete and true, it necessarily follows that it will 
speak correctly. 

When stock is issued, it is customary to write 
upon the certificate the name of the person to whom 
it is issued, the number of shares which the certificate 
represents, and the amount of each share. The seal 
of the corporation is very often attached to the cer- 
tificates and they are usually signed by the president 
and the secretary. The holder of a certificate of 



54 COMMERCIAL LAW 

stock may write his name upon the back of it, which 
is called endorsing it in blank, and deliver it to an- 
other person. This endorsing and delivery is suffi- 
cient to pass the title. The person to whom the stock 
is delivered may take it to the office of the corpora- 
tion and have the transfer made upon the books. If 
he fails to have the transfer made, he will neverthe- 
less be a stockholder, but his name not being upon 
the books, would not be entitled to, and would not 
receive notices of stockholders' meetings. It is also 
necessary that he have his name properly upon the 
books in order that he may receive his dividends and 
such other benefits as he may be entitled to. 

The liability of a stockholder on unpaid stock 
is not confined to those to whom the stock is issued 
in the first instance. Subsequent purchasers are 
also liable, and it often happens in this way that pur- 
chasers of stocks in insolvent corporations get a 
liability rather than an asset. This is a pitfall into 
which many an innocent person has tumbled. 

The stockholders of a corporation are in reality 
the owners of its assets. If the corporation is dis- 
solved, the assets will be divided among the stock- 
holders in proportion to the amount of stock held by 
each. 

In exactly the same way the votes of the stock- 
holders are apportioned. The holder of one share 
of stock has one vote, while the holder of one hundred 
shares has one hundred votes, and so on. In this 
way it very frequently happens that one person owns 
a majority of the stock, and, therefore, controls the 
acts of the corporation. A holder of the majority 
of the stock can dictate the methods of business to be 
pursued and can name the officers and directors of 



COMMERCIAL LAW 55 

the corporation. He can elect himself if he so de- 
sires, or he can elect others whom he can remove 
when they fail to do his bidding. 

While a minority stockholder has certain rights 
he has little power as against the will of the majority. 
It is the rule that one who is in good faith a stock- 
holder has the right of access to the books of the 
corporation in order that he may know the nature 
and the character of the business which is being done. 
In case of fraud, he can appeal to the courts for pro- 
tection. 

DISSOLUTION. 

A corporation may be dissolved by the expira- 
tion of its charter or by the surrender of its charter 
to the state, or by legislative enactment or by for- 
feiture. 

In some of the states perpetual charters are 
issued, but in most of them there is a limit. When 
this limit is reached, a corporation is said to be dis- 
solved by expiration. 

Sometimes a corporation desires to go out of 
business, and in such a case may surrender its charter 
to the state which granted it. 

Corporations are often wound up through 
judicial proceedings, it being found that they are 
insolvent and unable to carry on the business for 
which they were organized. Courts will also dis- 
solve corporations where they have been guilty of 
some misconduct in violating the laws of the state 
or in failing to meet certain prescribed regulations 
pertaining to their existence. 

In cases of the dissolution of corporations they 
are considered as continuing in existence for the 
purpose of prosecuting and defending any suits in 



56 COMM ERCI AL LAW 

which they may be interested at the time of the dis- 
solution, and also for the purpose of collecting their 
assets and liquidating their liabilities. 

While most corporations are formed under the 
laws of the various states of the Union, there are 
some which are national and are organized under the 
laws of Congress. National banks come under this 
head. 



Review Questions. 

I. What is a corporation? Give the often quoted defini- 
tion. Name some of the principal characteristics of a cor- 
poration. How are they different from partnerships as to the 
liability of members ? Name the two general classes of corpora- 
tions. Give examples of each. What is the difference between 
a corporation for pecuniary profit, and one not for pecuniary 
profit as to the issuing of stock? Which calls for stockholders, 
and which members? Name as many other classifications of 
corporations as you can. When is a corporation said to be sole? 
When aggregate? What is a public corporation? What is a 
quasi corporation? Give example of these two classes. What 
is a private corporation? What is meant by a close corpora- 
tion? What is an open corporation? Give example. Into 
what two classes may private corporations be divided? Give 
an example of a religious corporation. Give an example of a 
lay corporation. Into what two classes may lay corporations 
be divided? Give example of a charitable corporation. Give 
example of a civil corporation. To what class do ordinary 
business corporations belong ? 

II. Name some of the different characteristics of a cor- 
poration. What can you say as to the use of the corporate 
name ? May a corporation sue and be sued in its own name 
without the use of the names of any of its officers or stock- 
holders ? How are corporations now usually organized ? What 
should the application for leave to incorporate contain? Why 
should the application contain the names and residences of 
the incorporators? What can you say as to the name of a 
corporation? May two corporations in the same state have 
the same name? Give reasons. What can you say as to ob- 
jects and purpose? May a corporation which is organized for 



COMMERCIAL LAW 57 

one purpose engage in something entirely different? If it 
does so, what will its acts in so doing be called? What is meant 
by ultra vires? What can you say as to corporations having 
a principal place of business? Should its charter be recorded 
in the county where its principal office is located? What is 
the object of having a public record as to the formation of 
corporations? What can you say as to capital stock? What 
can you say of stock that has been issued in excess of the assets 
of the corporation? What can you say as to certificates of 
stock? What do they usually contain? By whom are they 
signed? Why should the application contain the name of 
trustees or directors who are to manage its affairs for the first 
year of its existence ? What is the best rule to be observed in 
determining the amount of capital stock? 

III. What can you say as to the liability of stockholders? 
When are stockholders personally liable in the event of in- 
solvency? When are they not liable? Name some of the 
advantages of corporations over partnerships. Between what 
sums does the amount of shares vary? When is a corporation 
said to be fully organized and ready to proceed to business? 
Is it necessary that corporations of all kinds have officers and 
directors or managers ? 

IV. What can you say as to the growing influence of cor- 
porations in business? When corporations are organized for 
the purpose of buying up stock, and controlling the business of 
other corporations, what are they called? Are corporations 
allowed to own the stock of other corporations in all the states ? 
What advantages are derived from having trust companies act 
as executors, trustees, and so on? May the same corporation 
be both a bank and a trust company ? What can you say as to 
the implied powers of a corporation? Name as many implied 
powers of corporations as you can. How is the business of a 
corporation carried on? What are the duties of the officers 
and agents of a corporation as to its stockholders? If they 
fail in their duties, what may the stockholders do? Does the 
fact that a person is a stockholder give him the right to transact 
business in the name of the company, and for the company? 
What can you say as to the position occupied by the officers 
of a corporation? Can they use their positions for their own 
benefit to the detriment of the stockholders? If they do 
what will be the result? When may directors be personally 
liable to the stockholders for their conduct? May a corpora- 
tion make a contract the same as an ordinary individual? By 
whom are contracts usually signed when made by a corpora- 
tion? When are corporations responsible for the acts of their 



58 COMMERCIAL LAW 

agents? Are corporations allowed exemption under the law 
as regards executions, writs of attachments, etc.? If a corpora- 
tion makes a contract to pay an usurious rate of interest, can 
it be enforced ? 

V. What can you say as to the necessity of keeping rec- 
ords ? What should records contain ? By what does a corpora- 
tion speak ? Is it usual to attach the seal of the corporation to 
stock certificates which are issued? How may a certificate 
of stock be sold and delivered ? What should a person to whom 
a certificate of stock is sold do? May one be a stockholder 
whose name does not appear upon the books of the corporation ? 
What are the advantages of having one's name upon the books? 
Is the transferee of a certificate of stock liable thereon the 
same as the person to whom it was originally issued? When 
would a certificate of stock be a liability rather than an asset? 
After a corporation has been dissolved, having assets, how 
will the assets be divided? 

VI. How are the votes of the stockholders apportioned? 
Does the stockholder with one share have as many votes as the 
stockholder with one hundred shares? How do they differ in 
this respect from partnerships? Can one person holding a 
majority of stock of a corporation also have a majority of votes 
and thereby control the cor:: oration Name some of the powers 
of a majority. If an officer and agent of a corporation refuses 
to do the bidding of th majority, what can be done? What 
are some of the rights of a minority stockholder? What can 
you say as to his powers ? Does he have the right of access to 
the books ? When can he appeal to the courts for protection ? 

VII. How may a corporation be dissolved? What can 
you say as to the time limit of charters in different states ? How 
may a corporation be wound up before its charter has expired? 
May a corporation's charter be forfeited for failure to obey the 
law ? Are there any national corporations ? Give example. 



IV. 
COMMERCIAL PAPER. 

Commercial paper is that class of paper which 
is governed by laws and rules based upon the customs 
of merchants. It consists of such instruments as 
drafts, notes, and bank checks. It is often treated 
under the heads of Bills and Notes and Negotiable 
Instruments. 

Commercial paper facilitates the transaction of 
business in ways too numerous to be mentioned. It 
is a great labor saving invention. Together with 
money it constitutes the blood of commerce. It is 
conceded that far more than half the volume of busi- 
ness exchanges at the present time is carried on 
without the actual payment of money. It is simply 
an exchange of credits by the use of checks, drafts 
and notes — negotiable instruments. 

DRAFTS 

A draft is the same as a bill of exchange. The 
word draft is more frequently used, though bill of 
exchange is the older form and is not at all uncommon. 

A draft is an order by one person on another for 
the payment of money to the order of a third person 
or to bearer. Following is a form : 






"Ma 



/CmW yd/— Q<r&L M^lX#S ^>y / 






%L&0^/jd£fci 



r^u-A^y. 



60 COMMERCIAL LAW 

Paul Pry, who signs the draft, is called the 
drawer; E. M. Johnson, upon whom it is drawn, the 
drawee; and John Robertson, to whom or to whose 
order it is payable, the payee. 

This draft as it stands now is what is called a 
" sight draft" — that is, it is payable at sight or as 
soon as presented. Instead of the words " at sight," 
the following might have been used: "At ten days 
sight," or "at thirty days sight." Then it would 
have been a "time draft," meaning that Johnson, 
the drawee, should have ten or thirty days in which 
to pay after presentation. 

It often happens that time drafts are presented 
to the drawee at once for the purpose of having them 
dishonored or accepted. If the drawee accepts, he 
writes across the face of the draft: "Accepted," 
and signs his name, "E. M. Johnson," immediately 
under the word "accepted." The draft then be- 
comes a binding obligation upon the drawee. If the 
drawee wishes to dishonor the draft, he may refuse 
to "accept it," or he may write "refused" on its face, 
or say or write other words or do other things which 
indicate his refusal to accept. In case of an accept- 
ance, it is not absolutely necessary that the word 
"accepted" be used, though it is customary. Any 
word or words, followed by the signature, which 
clearly indicate the intention of the drawee will 
answer the purpose. 

When the drawee refuses to pay or accept, it is 
customary for the payee to notify the drawer that 
his draft has been dishonored. When this notice of 
non-payment or dishonor is given in due form of law, 
it is called protesting, of which more will be said 
later. 



COMMERCIAL LA W 61 

If the words " pay to John Robertson or order" 
were used instead of "pay to the order of John 
Robertson" the meaning and effect of the draft 
would not be changed one iota. In either case, 
Robertson could endorse the draft over to some one 
else, and then the person to whom it was endorsed, 
the endorsee, would really bee me the payee and 
would have all the rights that Robertson had. He 
could present it to Johnson for payment or accept- 
ance. This is the effect of the words, "pay to the 
order of." They mean that if Robertson does not 
wish to collect the draft himself, or wants to sell it, 
he may "order" that it be paid to some one else by 
endorsing it. In case the draft is dishonored when 
presented by the endorsee, both the drawer, Pry, and 
the original payee, Robertson, should be notified, 
though it is not always absolutely necessary. If the 
endorsee so desires, he may endorse the draft to still 
another person, and that other to still another, and 
so on indefinitely ; the last person to whom it is en- 
dorsed and delivered always having the same right 
to collect as the original payee, Robertson. In case 
of dishonor in the hands of any endorsee, it is cus- 
tomary for him to notify the drawer and all previous 
endorsers, as all are liable to him for full payment 
when properly notified. 

Nor is it absolutely necessary that either the 
words, " or order" or "pay to the order of" be used, 
though their use is well-nigh universal. They are 
sometimes described as words of negotiability. 
Other words conveying the same meaning would 
serve. And a simple order to "pay to John Robert- 
son/' etc. would suffice in Illinois, and in many 
other states, the effect being the same as though the 



62 COMMERCIAL LAW 

so-called words of negotiability were used. But to 
avoid question, it is better to use the words of ne- 
gotiability. 

To endorse means literally to write upon the back 
of. If Robertson wishes to transfer his draft to some 
one else he must endorse and deliver it. There are 
several kinds of endorsements. Writing the name 
only upon the back of the instrument is an indorse- 
ment in blank, as : 

JOHN ROBERTSON. 

With a blank endorsement the draft may be 
transferred from one person to another by simple 
delivery, though many business men, and banks 
especially, often refuse to take paper unless the 
person who offers it is willing to put his own name 
upon it. There are two reasons for this : It creates 
an additional liability, each- endorser being liable 
if the paper is dishonored, and also shows the history 
of the instrument. Blank endorsements are very 
common, though not the safest. A holder is liable 
to the person to whom he transfers paper even though 
he does not endorse it, but this liability does not ex- 
tend to subsequent transferees unless there is an 
endorsement. 

Following shows a full endorsement : 

Pay to Nathan Brown or order. 

JOHN ROBERTSON. 

In this case Brown cannot make a legal transfer 
unless he endorses the instrument, as it is payable to 
his order. He may either endorse it in blank by 
simply writing his name below Robertson's name, 
or he may endorse it to the order of some one else, 
and so on with any number through whose hands 
the paper may pass. 






COMMERCIAL LAW 63 

If Robertson delivers the paper to Brown with 
a simple blank endorsement, Brown has the right to 
write the words, ''pay to the order of Nathan 
Brown," over the name of Robertson, thus changing 
the blank endorsement to a full endorsement. Paper 
endorsed in blank is payable to the bearer or holder. 
This is an endorsement without recourse : 
Pay to the order of Nathan N. Brown, without 
recourse on me. 

JOHN ROBERTSON. 

Or simply : 

john Robertson, without recourse. 

An endorsement without recourse means that 
the endorser, Robertson in this case, is not liable if 
the draft is not paid. The endorsement is for the 
purpose of transferring the paper only. 

But it is to be remembered that an endorser 
without recourse will not escape liability if any of 
the prior signatures are not genuine, or if the paper 
is invalid for lack of legal c nsideration, or any prior 
party incompetent to make contracts or the en- 
dorser himself without title. The endorsement 
without recourse simply means that the endorser 
shall not be liable if the paper is genuine and is in all 
respects what it purports to be. 

The endorsement may be restrictive, as: 

Pay to Nathan Brown only. 



Or 
Or 



Pay to Nathan Brown for my use. 



Pay to Nathan Brown for Collection. 

JOHN ROBERTSON. 

Such endorsements are not sufficient for an 
actual transfer, but are usually evidence of the crea- 



64 COMMERCIAL LAW 

tion of an agency, as where a client turns a note or 
draft over to an attorney for collection. The. title 
is not in the endorsee, Brown, and he cannot bring 
a suit on the paper in his own name. People often 
endorse checks in this manner for deposit in banks, 
Thus: 

For deposit to the account of 

JOHN ROBERTSON. 

Where the endorsement is unrestricted, the 
title passes absolutely to the endorsee and he may 
sue in his own name. He may sue not only the 
drawer, but any previous endorser. This is perhaps 
the chief feature of negotiability. 

There are also conditional endorsements, as: 
Pay to Nathan Brown or order when he arrives at 
the age of twenty -one. 

JOHN ROBERTSON. 

This condition is self-explanatory. If the 
drawee, who is sometimes called the acceptor after 
he accepts, pays a bill, with a conditional endorse- 
ment, before the condition is satisfied, he may have 
to pay it again. 

Legal representatives such as executors, ad- 
ministrators, guardians, and conservators may en- 
dorse paper belonging to estates under their control. 
For example : 

WILLIAM JONES. 

As Executor of the last will and testament of John 
Robertson, deceased. 
Or 

WILLIAM JONES. 

As Conservator of the estate of John Robertson, 
insane. 



COMMERCIAL LAW 65 

The idea of the endorsement is to show the 
legal capacity in which the endorser acts. 

Executors and others acting in such capacities 
should endorse without recourse if they want to 
make sure of avoiding personal liability. 

One partner may endorse for the partnership by 
writing the firm name. 

A corporation endorses by its proper officer, 
officers or agents, as : 

The Brown Company, 
Per Nathan Brown, President. 

Where paper is payable to several, they must 
all endorse it. 

The use of the word as is important in endorse- 
ments by executors, etc. In the example given, if 
William Jones does not use the word as before 
executor, the meaning will be changed. Where as is 
used it serves as a limitation — that is, Jones does 
not endorse as William Jones, but as William Jones 
in his capacity as executor, etc. 

Where the word as is omitted, then the words 
following the name are simply descriptive of the 
person, and do not necessarily imply a limitation. 
Things like this often pass unnoticed until too late 
to remedy them. 

The words " for value received" are not essential 
to the validity of commercial paper. The considera- 
tion is presumed without them, and even if they are 
used and there is actually no consideration, that fact 
can be shown as between the original parties, but 
when the paper has passed into the hands of an 
innocent endorsee the presumption of consideration 
is conclusive, whether the words are used or not. 

Pry owes Robertson one hundred dollars, and 



66 COMMERCIAL LAW 

Johnson owes Pry a like amount. By the use of 
this draft, the whole three-cornered affair is settled 
and no money changes hands. Considering endors- 
ers and endorsees, instances of the saving of time and 
the avoidance of the use of money might be multi- 
plied indefinitely. Between the larger cities ux- 
changes of credits are made very largely by the use 
of commercial paper — thus saving the expense and 
loss necessarily incurred in shipping money. 

Drafts are usually dated on the day of drawing, 
but they may be ante -dated or post-dated or not 
even dated at all, and still be good and negotiable, 
unless it could be shown that the date was material 
or that fraud had been practiced 

A draft drawn upon a person in another country 
or state is called a foreign bill of exchange; if upon a 
person in the same state as the drawer, an inland 
bill of exchange. Drafts are the oldest form of com- 
mercial paper. 

A draft should be presented to the drawee for 
his acceptance at the earliest possible convenience. 
Negligence in this regard may cause the holder to 
lose in case of non-acceptance by the drawee. 

Instead of using the words "at sight" or "at 
ten days sight," which means when presented or ten 
days after presented, a specific date may be set, if 
for any reason it is desirable. 

The drawee in some states has three days — 
days of grace — in which to pay after the time set for 
payment in the draft. In other states days of grace 
are abolished, as in Illinois. 

CHECKS. 

Checks are a species of drafts, and are subject 
generally to the same rules. But there are some 



COMMERCIAL LAW 67 

differences worthy of notice. The wording differs 
slightly. Checks are drawn upon banks or bankers, 
while drafts are usually on individuals or firms. A 
check is simply a means of paying out money; a 
draft is often used for the purpose of collecting money 
from a debtor. There being an implied contract 
between the bank and the depositer that the bank 
will pay all checks properly drawn when there are 
sufficient funds, the bank is under legal obligations 
to the holder of a check to pay it when presented; 
but the drawee in a draft is under no legal obligations 
to honor it. Days of grace are never allowed on 
checks. 

In other respects all that has been said with 
reference to drafts applies with equal force to checks. 

A check, therefore, is a draft or written order 
on a bank to pay a certain sum of money to the per- 
son named therein or to his order. Following is a 
form: 



^FmsrJSianoaNMiBANK of Chicago 






PAY tO THE ORDER OF 



} a£«s (^i ^^C^^Z. /j£jQJ±t 



Qw, J/t^A ^^ **^ 



t^&Ut* < ^W 



The parties — drawer, drawee, and payee — are 
the same as in the draft. 

Many checks are drawn in the same form as 
drafts with the name of the bank, the drawee in the 



68 COMMERCIAL LAW 

lower left hand corner, but the form given above is 
more common. 

An endorser of a check is discharged from lia- 
bility thereon if it is not presented to the bank for 
payment by the endorsee within a reasonable time. 
A reasonable time means as soon as business methods 
will conveniently permit. It may be a day or two 
or longer, owing to circumstances. 

In order to prevent ''raising," no parts of a 
check should be left blank. Lines should be drawn 
in the spaces after the words, Where the drawer 
has used due care and diligence in writing a check, 
the bank will be liable if it pays for a "raised" 
amount. But if the drawer has invited the "rais- 
ing" by his carelessness, the bank cannot be held. 

Banks will refuse to pay a check unless the 
holder is known, or is identified by some one who is 
known. 

The holder of a check, instead of getting the 
cash for it, may present it to the bank and have it 
certified. After certification it will circulate as the 
paper of the bank. The bank may certify a check 
by writing across the face of it such words as " Good," 
"Accepted," "Certified," or other words of like im- 
port, followed by the signature of the cashier, teller, 
or other author zed agent or officer of the institution. 
The certification is simply an acceptance of the 
draft by the bank, which removes all doubt as to 
whether the drawer acted in good faith in writing 
the check. 

When a check has been certified it is usually 
too late for the drawer to stop payment on it, though 
it is sometimes done. 

Checks are by far the most used of any form of 



COMMERCIAL LAW 69 

negotiable instruments. When paid by banks 
they are returned to the drawers, and thus serve as 
the very best kind of receipts 

NOTES. 

A promissory note is a written engagement by 
one person to pay, absolutely and unconditionally, 
to another person therein named, or to his order or 
to bearer, a certain sum of money at a specified 
time, or on demand or at sight. No precise words 
are necessary, provided they amount, in legal effect, 
to a promise to pay. 

The following, when properly signed, have been 
held to be valid notes : 

" Due A. $325, payable on demand." 

"I acknowledge myself indebted to A. $109, 
to be paid on demand, for value received." 

" I O U. $85, to be paid May 5th." 

However, it is much better to use a regular 
form such as the following : 







Paul Pry, who makes the note, is called the 
maker and not the drawer as in the cases of drafts 
and checks. Robertson, in whose favor the note 
is made, is called the payee, as in the draft. There 
may be more than one payee and more than one 
maker as the circumstances require. 



70 CO M MERC I AL LAW 

The time may be one year or any other time 
agreed upon. When the time specified expires, the 
note is said to mature. After maturity, the holder, 
whether he be Robertson or some one to whom he 
has endorsed, may sue if the note is not paid. If 
Robertson, the payee, sues Pry, the maker, and Pry 
has any defense by way of counter claim or otherwise 
against Robertson, he may show it and thus defeat 
the suit, if his claim is valid. But if Robertson 
transfers the note, before maturity, by endorsing and 
delivering it to Brown, then Brown can sue Pry, if 
payment is not made when due, and Pry cannot set 
up as against Brown the defense which he might 
have used against Robertson. If, however, Brown 
takes the note from Robertson after maturity, then he 
takes it subject to all the defenses which Pry may 
have as against Robertson. The reason for this is 
that there is a privity of contract between the orig- 
inal parties, Pry and Robertson, and in a suit be- 
tween them the law will do justice by considering 
all the facts and circumstances; but as between 
Brown and Pry there is no privity; the note being 
regular on its face, Brown has a right to assume that 
it is all right any time before maturity. He only 
takes chances after maturity. Likewise there would 
be privity of contract between Robertson and Brown, 
they being immediate parties as to their transaction, 
but not between Robertson and Brown's endorsee. 
And so on through any number of endorsers and 
endorsees, privity of contract existing only between 
those whose relations are immediate. Pry and 
Robertson are immediate parties. Pry and Brown 
are remote parties. Robertson and Brown are im- 



COMMERCIAL LAW 71 

mediate parties. Robertson and Brown's endorsee 
are remote parties. 

These two facts: (1) that the holder can sue 
in his own name, and (2) that he takes the paper 
free from any defense by remote parties, are of the 
essence of negotiability. 

When a note falls due, the maker should be at 
the place of payment, or at least have the money 
there to meet it. If the holder is not on hand with 
the note to be surrendered, and the maker is there 
ready to pay, then the interest stops, and it is doubt- 
ful if the holder could recover costs in the event of 
suit thereafter. 

As a rule suit must be brought in the county and 
state where the maker resides, no matter what the 
note recites as to the place of payment. 

COLLATERAL NOTES. 

Notes may contain collateral agreements with- 
out in any way affecting their negotiability. These 
collateral agreements, of which the following is an 
example, are usually attached to the note as a part 
of the same sheet of paper : 

KNOW ALL MEN BY THESE PRESENTS, That the sub- 
scriber. ...hereto justly indebted ->o John Rob- 
ertson, or order, upon the within promissory note, and has this day 
deposited with said John Robertson, as security to the payment 
thereof, the following mentioned collaterals, namely: Two dia- 
mond rings, one gold watch and a gold headed cane. 

And in default of payment of said note, or any part thereof 
at maturity, I do hereby authorize said John Robertson or his 
assigns, to sell and dispose of said security, or any part thereof, at 
public or private sale, in his or their discretion; and in the event 
of said security, or any part thereof, depreciating in market value, 
I do hereby authorize said John Robertson or his assigns, at his or 
their option, to sell and dispose of said security, or any part thereof, 
at any time before or after the maturity of said note, at either public 
or private sale. And in the event of sale before or after the matur- 



72 COMMERCIAL LAW 

ity of said note aforesaid, no notice of such sale shall be required to 
be given to the undersigned, or to any other person or persons whom- 
soever, either by advertisement or otherwise. And the proceeds of 
such sale or sales so made as aforesaid, shall, after the payment of 
all expenses and commissions attending said sale or sales, be ap- 
plied on said note, and the balance, if any, after payment of said 
note with interest, shall be returned to the undersigned, his heirs, 
executors, administrators or assigns. And at any sale of said 
collaterals, or any part thereof, made by virtue hereof, it shall be 
optional with the legal owner or holder of said promissory note, to 
bid for and purchase said collaterals or any part thereof. 

Witness my hand and seal at Chicago in the State of Illinois 
this 26th day of August, A. D. 1902. 

Paul Pry. [Seal.] 

They may, but need not be, under seal. 
Stocks, bonds, other notes, and in fact any kind 
of personal property can be used as collateral. 

JUDGMENT NOTES. 

Notes may have what is called a "judgment 
clause" attached and still retain all the features of 
a plain promissory note. 

Following is a common form of judgment note : 

$100.00 Chicago, August 26th, 1902. 

One year after date, for value received, I promise to pay to the 
order of John Robertson, One Hundred ($100) ^— Dollars, at his 
Chicago office, with interest after date at the rate of 6 per cent, per 
annum, and with interest at the rate of seven per cent, per annum, 
after maturity, until paid. 

And to secure the payment of said amount I hereby authorize 
irrevocably, any attorney of any court of record to appear for me 
in such Court, in term time or vacation, at any time hereafter, tj 
waive a jury trial in writing and confess a judgment, without proc- 
ess, in favor of the holder of this note, for such amount as may 
appear to be unpaid thereon, together with costs and five per centum 
attorney's fees, and to waive and release all errors which may inter- 
vene on any such proceedings , and consent to immediate execution 
upon such judgment; hereby ratifying and confirming all that my 
said attorney may do by virtue hereof. 

No. 4 , Paul Pry. 
Due Aug. 26, 1903. 



COMMERCIAL LAW 73 

Ordinarily in a suit on a note it is necessary to 
have process issued, services on the party sued, a 
date set at some future term of court and a trial ; 
but the holder of a judgment note may go into court 
and take judgment by confession and have execu- 
tion issued at once. In this way the business of a 
debtor may be closed in a few hours time and almost 
within a few minutes. 

If the words "at any time hereafter" are used 
in the judgment clause, judgment can be confessed 
before maturity of the note. 

In order to avoid judgment before maturity, 
the debtor should insist upon the words, "at any 
time after maturity," instead of the words "at any 
time hereafter." 

The judgment clause may provide for a percent- 
age attorney's fee or for a fixed amount. In either 
case the court will substitute a reasonable for an 
unreasonable amount. 

Usually the plaintiff or his agent must make an 
affidavit that the defendant is alive before taking 
judgment by confession. In some states judgments 
by confession are not allowed, and in those where 
they are allowed the courts are quick to open them 
upon evidence of wrong doing. 

The same note may contain both a judgment 
clause and a collateral agreement. 

NEGOTIABILITY. 

The notes, checks and drafts which we have been 
considering are all negotiable instruments. There 
are other classes of paper which are also negotiable. 
Certificates of deposit, issued by banks, are negoti- 
able instruments. They simply recite that so much 



74 COMMERCIAL LAW 

money has been received at such a bank and is on 
deposit to the order of the person from whom it was 
received. They are signed then by the teller, or 
some other competent officer of the bank. When 
endorsed by the person in whose favor they are 
drawn, they may be transferred as other paper. 

Certificates of stock issued by corporations are 
in a sense negotiable. If a person to whom a cer- 
tificate of stock is issued, endorses it in blank, it may 
in that form pass through any number of hands. 
Receipts issued by warehouses where goods have 
been deposited for safekeeping, are in some respects 
negotiable. 

While it is difficult to give an abstract definition 
of negotiability, negotiable instruments usually, 
though not always necessarily, have the following 
characteristics : 

1. They must be payable, absolutely, and 
without contingencies. 

2. If drafts or checks, they must contain a di- 
rection to pay, and if notes, a promise to pay. 

3. They usually have what are termed "negoti- 
able words." 

4. They must be certain as to amount. 

5. They nearly always call for the payment 
of money, though not necessarily so. 

6. They must be delivered to the person or 
persons in whose favor they are made or drawn. 

If an instrument is made payable upon the 
happening of an uncertain event, it is not negotiable. 
The date or event must be certain. An instrument 
payable ten days after the death of a party would be 
negotiable because death is certain. Instruments 
payable after the marriage of a party are not negoti- 



COMMERCIAL LAW 75 

able. People are not always certain to marry. In 
most instruments the time is made certain by a re- 
cital of dates. 

It is not necessary that the word " promise" be 
used in a note, provided the language is sufficient to 
imply a promise. 

While the so-called words of negotiability are 
nearly always used, they are not absolutely neces- 
sary, as has been pointed out. 

In most cases negotiable instruments relate to 
money, but they may be negotiable sometimes where 
other forms of property are mentioned. As sus- 
taining this point sections 3 and 4 of the Illinois 
statute on Negotiable Instruments are quoted here- 
with in full : 

3 All promissory notes, bonds, due bills and other in- 
struments in writing, made or to be made, by any person, body 
politic or corporate, whereby such person promises or agrees 
to pay any sum of money or articles of personal property, or any 
sum of money in personal property, or acknowledges any sum 
of money or article of personal property to be due to any other 
person, shall be taken to be due and payable, and the sum of 
money or article of personal property therein mentioned shall, 
by virtue thereof, be due and payable as therein expressed. 

4. Any such note, bond, bill, or other instrument in 
writing, made payable to any person named as payee therein, 
shall be assignable, by indorsement thereon, under the hand of 
such person and of his assignees, in the same manner as bills 
of exchange are, so as absolutely to transfer and vest the prop- 
erty thereof in each and every assignee successively. 

While the amount called for should be definite, 
the fact that the instrument calls for interest or for 
payments by installments, does not make it in- 
definite. 

An instrument while in the hands of the drawer 
or maker is not considered negotiable. It should 
be delivered to the payee and it is he who negotiates 



76 COMMERCIAL LAW 

it. The contract of which the instrument is evi- 
dence, is not complete until it is delivered. 

ACCOMMODATION PAPER. 

Where there are two makers to a note, only one 
of whom receives the proceeds thereof, the other is 
called "an accommodation maker," and as to him 
the note is accommodation paper. Persons fre- 
quently lend their names and their credit in this way 
for the purpose of helping friends. Where the 
drawee in a draft accepts, and at the same time is 
is not indebted to the drawer, he is said to be "an 
accommodation acceptor," and the draft as to him 
is accommodation paper. This is simply another 
method of lending one's credit. The liabilities of 
he makers of accommodation paper are exactly the 
same as the real makers. While there is no con- 
sideration as to them, there is consideration for the 
paper, and they being parties to the paper are bound 
by its terms. 

PROTEST. 

The practice of protesting commercial paper is 
becoming less and less common. By protesting is 
meant the giving of legal notice to the drawer, 
maker, or endorser of the paper that it has been pre- 
sented for payment or acceptance, and payment or 
acceptance refused. The party presenting the paper 
for payment in order to protest it must take a 
Notary Public or other officer with him, and have 
it presented for payment or acceptance either in the 
presence of, or by the Notary Public. Then the 
Notary Public makes out a certificate under his 
official seal relating the fact that presentment has 



COMMERCIAL LAW. 77 

been made and payment refused. This certificate 
is attached to the instrument and becomes a part of 
the evidence as showing that the holder has used due 
diligence. The Notary also makes out a formal 
notice, a copy of which is sent to each person who is 
liable upon the instrument. Protest is seldom nec- 
essary for the purpose of holding an ordinary maker 
or drawer of an instrument, though circumstances 
arise under which endorsers are entitled to this form 
of legal notice. On questions of protest a lawyer 
should be consulted. 



Review Questions. 

I. What is commercial paper? By what other names is 
it known? What are the uses to which commercial paper is 
put? What proportion of business in large cities is carried on 
through commercial paper ? 

II. What is a draft? What is the difference between a 
draft and bill of exchange? Who are the parties to a draft? 
By what names are they called? What is meant by a sight 
draft? What is a time draft? Are time drafts usually pre- 
sented for acceptance before the date of payment ? When does 
a draft become a binding obligation upon the drawee? How 
does the drawee accept? Are any particular words necessary 
for the acceptance? If the drawee refuses to accept, how may 
he make his refusal known? Is there any obligation upon the 
drawee to accept if he does not desire to do so ? If the drawee 
refuses to accept, what should the payee or holder of the draft 
do? When he gives legal notice of refusal to accept, what is 
this legal notice called? What can you say about the words 
' ' pay to the order of " ? Are they abso 1 utely necessary ? Where 
the payee endorses a draft, and delivers it to the endorsee, what 
rights does the endorsee have? If a draft is dishonored when 
presented by the endorsee, what should he do as to notice ? 

III. What is meant by words of negotiability? What 
can you say as to their use? Are they always necessary? 
What is meant by endorsing an instrument ? In order to trans- 
fer a draft what is necessary? What is meant by blank en- 



78 COMM ERCIAL LAW 

dorsements ? Give examp e. What are the advantages of 
blank endorsements? What are the disadvantages of blank 
endorsements? What is a full endorsement? What is the 
difference between a blank endorsement and a full endorsement 
as to subsequent transfers of the paper? Can blank endorse- 
ments be changed to full endorsements by the endorsee? Can 
an instrument endorsed in blank be transferred from one person 
to another without additional endorsements? What is meant 
by endorsement without recourse ? When are endorsers without 
recourse liable ? What is the purpose of the endorsement of an 
instrument without recourse? To whom is one who delivers 
paper endorsed in blank always liable? What does endorse- 
ment without recourse warrant? What is meant by restrictive 
endorsements? Give example. What purposes do restrictive 
endorsements serve? Do they pass title to the paper? What 
is meant by conditional endorsement? Give example. If the 
paper is paid before the condition is satisfied, what is likely to 
happen ? What can you say as to the right of executors and 
administrators, etc., to endorse commercial paper? How 
should executors endorse if they wish to avoid personal liability ? 
May one member of a partnership endorse paper for the firm? 
How do corporations make endorsements? Where paper is 
payable to several persons, must they all endorse in order to 
transfer it? What can you say as to the use of the word "as" ? 

IV. Are the words "for value received" necessary in 
commercial paper? What does the law presume as to con- 
sideration? If there was in fact no consideration will the use 
of the words ' ' for value received ' ' have any effect in a suit 
between immediate parties? When is the presumption as to 
consideration conclusive ? 

V. What can you say of commercial paper as a means of 
exchanging credits ? Give as many examples as you can regard- 
less of what you have seen in the text. What is effected by the 
use of commercial paper? What can you say as to the dates 
of drafts? If no date is given, is the draft invalid? What is a 
foreign bill of exchange? What is an inland bill of exchange? 
What is the oldest form of commercial paper? When should 
a draft be presented for payment? What may be the result of 
negligence in this matter? What is meant by "days of grace" ? 
Do all states allow days of grace? 

VI What is a check ? What can you say as to the differ- 
ence in wording between checks and drafts? Upon what are 
checks usually drawn? How do they differ from drafts as to 
the drawee? What can you say as to the difference in use 
between checks and drafts? Is the drawee in a check under 



COMMERCIAL LA W 79 

any legal liability to pay? How do checks differ from drafts 
in this regard ? Are days of grace ever allowed on checks ? Do 
the same rules which govern drafts usually govern checks? 
Give the best definition you can of a check. Write out the 
form of a check? Who are the parties to a check and by what 
names are they called. What can you say about the liability 
of an endorsee of a check? What is meant by reasonable time 
as to the presenting of a check for payment? What sort of 
precaution should be exercised in order to prevent the raising 
of checks? When is a bank liable on a raised check? When 
is the drawer liable? Will a bank ordinarily pay a check to a 
stranger? What is meant by a certified check? How are they 
certified ? What is the certification of a check ? Can payment 
be stopped on a certified check? What is the most common 
form of negotiable paper ? 

VII. What is a promissory note ? Give the best definition 
you can. Give example. Write out the usual form. Who 
are the parties to a note, and by what names are they called? 
How do the parties differ as to names from those in checks and 
drafts ? What can you say as to the time notes may run ? 
When does a note mature? After maturity what may the 
holder do? Against whom can the maker of a note make a 
defense? State the difference between a transfer of notes 
before and after maturity What chanc s does the purchaser 
of a note after maturity take? What is meant by privity of 
contract? Between what parties does privity exist? Give 
example. Who are remote parties to commercial paper? Who 
are immediate parties? Give example. Name the two prin- 
cipal characteristics of negotiable paper. When a note falls 
due what can you say about the payment of it at the time and 
place mentioned? If it is not paid, where must suit be brought ? 
What is meant by collateral notes? Do collateral agreements 
affect negotiable instruments ? What may be used as collateral ? 

VIII. What is a judgment note? What are the advant- 
ages of a judgment note from the creditor's point of view? 
What are the disadvantages from the debtor's point of view? 
What can you say for the use of the words "any time here- 
after " in a judgment clause ? What can you say about the attor- 
ney's fee? Will the court allow an unreasonabl attorney's fee 
even though it is provided for ? What can you say as to the dif- 
ference between ordinary notes and judgment notes as to the 
quickness of action ? If a debtor wishes to avoid judgment on 
a note before maturity, what words should he insist upon in 
the judgment clause ? What sort of affidavit must the plaintiff 
make before judgment on a judgment note? Are judgments 



80 COM M ERC I AL LAW 

by confession allowed in all states? May the same note con- 
tain both a judgment clause and a collateral agreement ? 

IX. What is meant by accommodation paper? What 
can you say as to the liability of the drawer or maker of accom- 
modation paper? 

X. What can you say as to the different features of nego- 
tiable instruments? What is meant by certainty as to time? 
Give example. Must negotiable instruments necessarily be 
payable in money? Explain what is meant as to certainty of 
amount. Would a provision in a note for interest and attorney's 
fees render it uncertain? 



V. 

PRINCIPAL AND AGENT. 

It is a general rule of law that whatever a person 
may do himself he may also do by an agent ; that is, 
if a party does not wish to carry on a certain line of 
business personally, he may authorize some one to 
act for him. The person who authorizes another 
to act for him is called the principal; the one author- 
ized to act for him, the agent; and the relation thus 
created between them, agency. 

The agency relationship is contractual. The 
contract may be written, oral or implied. Bearing 
in mind the law in relation to contracts, it will be 
seen that some agency contracts must be in writing 
to be good. For example: an agent to sell land 
must have authority in writing, under seal, and if 
he makes leases for his principal for a longer period 
than one year, he must have written authority. 
The statute of frauds would make oral authority in 
such cases ineffective. 

It is not necessary that the agency contract be 
made in advance of the thing to be done, though 
this is the usual course. A person may ratify or 
adopt the unauthorized acts of another, thus creating 
the relation of principal and agent. 

KINDS OF AGENTS. 

Agents are usually divided into three classes: 
universal, general, and special. 

An universal agent is one who is appointed to 

81 



82 COM MERC I AL LAW 

do all the acts which the principal personally can do, 
and which he may lawfully delegate the power to 
another to do. Such an agency is theoretical 
rather than practical, since it puts the agent com- 
pletely in the place of the principal. It is difficult 
to conceive of an example of universal agency. 

A general agent is one who is empowered to do 
all business of a particular kind. 

A special agent is one who is employed to do a 
single act or for a special transaction. 

A sub-agent is a person selected by an agent to 
perform a part or all of the duties of the employment. 

Persons by whom powers of government are 
exercised are often called public agents. They 
represent the legislative, executive, and judicial de- 
partments of government. But we are not particu- 
larly concerned with this class of agents here. 

PARTIES — POWER OF ATTORNEY. 

As to the parties to agency contracts, the ordi- 
nary rules governing contracts apply as to the 
principal, but not always as to the agent. Any 
person of full age and sound mind and under no legal 
disability, may be a principal. As a rule, a minor 
is incapable of appointing an agent. His contracts 
in this respect are the same as other contracts made 
by him. He may appoint an agent to do an act 
which is beneficial to him, but not to do an act which 
will injure him. If he does the latter, his contract 
will be at least voidable. 

On the contrary, one who is incapable of being 
a principal may be an agent, on the theory that his 
acts are not his own but those of his principal. Thus 
it will be seen that an infant may act as an agent, 



COMMERCIAL LAW 83 

where he could not possibly contract as a principal. 
There are many examples of infants acting as agents. 
Messenger boys in carrying telegrams for telegraph 
companies are the agents of the companies, and their 
negligence when within the scope of their agency is 
the negligence of their employers. 

Agents are frequently appointed by what is 
commonly called " power of attorney." The follow- 
ing is a form : 

POWER OF ATTORNEY. 

KNOW ALL MEN BY THESE PRESENTS, that James Tay- 
lor, of the City of Chicago, County of Cook, in the State of 
Illinois, has made, constituted and appointed, and BY THESE 
PRESENTS does make, constitute and appoint John Wilson, 
of the City of St. Louis, County of St. Louis and State of Mis- 
souri, true and lawful attorney for him, and inhisname....place, 
and stead to 

(Here insert the acts or act to be done by the agent or at- 
torney.) 



giving and granting unto John Wilson, said Attorney, full 
power and authority to do and perform all and every act 
and thing whatsoever, requisite and necessary to be done in 
and about the premises, as fully, to all intents and purposes, as 
he might or could do if personally present at the doing thereof, 
with full power of substitution and revocation, hereby ratifying 
and confirming all that his said Attorney or his substitute 
shall lawfully do or cause to be done by virtue hereof. 

IN TESTIMONY WHEREOF, I have hereunto set my 
hand....and seal....this 10th day of September, 1902. 
Signed, Sealed and Delivered in Presence of 

James Taylor. 

[Seal.] 

[Seal.] 



} 



84 COM M ERC I AL LAW 

STATE OF ^ 

County of I ss. 



in and for, and residing in the said County, in the 
State aforesaid, Do Hereby Certify, that 

personally known to me 

to be the same person whose name subscribed 

to the foregoing Instrument, appeared before me this 
day in person, and acknowledged that he signed, sealed 

and delivered the said Instrument as free and 

voluntary act, for the uses and purposes therein set 
forth. 

GIVEN under my hand and seal, this 

dav of A. D., 190 



Where the power of attorney authorizes the 
agent to sell real estate or to make long-term leases, 
it should be acknowledged, as per form attached, 
and recorded in the office of the recorder of deeds 
in the county where the land is located. 

AUTHORITY OF AGENTS. 

The question of an agent's authority depends, 
first, upon the class to which he belongs; that is, 
whether he is a general or a special agent. A gen- 
eral agent has not only the authority which is con- 
ferred upon him by his principal, but all such power 
and authority as it is customary for general agents 
in his particular line of business or employment to 
have. Thus if a principal appoints an agent at a 
certain place to represent him generally in a partic- 
ular line of business, he will have power to do any 
such acts as are commonly done by agents acting 
in that capacity and his acts will bind his principal. 
This, in spite of the fact that his contract with his 
principal may contain provisions to the contrary. 



COMMERCIAL LA W. 85 

Persons who deal with a general agent have a right 
to assume, and are usually safe in assuming, that he 
has the ordinary authority to act in the capacity in 
which he appears. 

With special agents, the rule is different. A spe- 
cial agent has only such authority as is committed to 
him by his principal, and persons dealing with him 
do so at their peril. It is their duty to examine into 
his authority and find out whether he has the right 
and the power to bind his principal in the capacity 
in which he is acting. Many business men are caught 
on this point. They only wake up to the fact that 
a special agent has exceeded his authority when it is 
too late. 

The following will illustrate the difference be- 
tween general and special agents as to authority : 

Jones is the general provision buyer for a large 
hotel company, and is known in the market as such. 
If he purchases potatoes at one dollar per bushel, 
although his principal may have told him not to pay 
that much, his principal is nevertheless bound and 
can be compelled to pay the dollar per bushel. This 
is for the reason that the hotel company has been 
and is holding Jones out as its general buyer, and the 
trade has the right to assume that he has authority 
to make contracts in his line of business. If, how- 
ver, Jones fails to appear on a certain day, and the 
hotel company sends a new man into the market to 
buy for that day only and tells him not to pay as 
much as a dollar per bushel for potatoes, then he can- 
not make a binding contract, if he agrees to pay one 
dollar per bushel. The hotel company might after- 
wards ratify his act and then be bound, but not 
otherwise. The reason for this is that when a strange 



86 CO M M ERC I AL LAW 

man goes into the market, it is the duty of those who 
are dealing with him to find out what authority he 
has. If they inquire they will find that he is simply 
a special agent, who is authorized to make this one 
contract, and then only at a certain figure. 

It is usually possible for persons dealing with 
agents to inquire and learn the extent and scope 
of the agency, and this should always be done before 
making contracts with them. 

Where a general agent or a special agent makes 
a contract within the scope of his employment and 
within the limits of such authority as he possesses, 
his acts are as completely the acts of the principal as 
though the principal had acted in his own behalf, 
The personality of the agent in such a case is ab- 
sorbed in the principal, and the agent incurs no per- 
sonal responsibility whatever. ■ 

A principal is bound by the acts of his gen- 
eral agent, though the agent exceed his authority, 
provided he does not go beyond such powers as are 
usual and customary in his business. A person who 
is dealing with a general agent known to be such, is 
not bound to inquire if his power is limited. 

Unlike general agents, special agents have no 
implied powers. Everyone who deals with a special 
agent is bound to inquire as to the scope of his au- 
thority. If he is negligent in this regard he deals 
with the special agent at his peril and cannot hold 
the principal where the agent has in any way ex- 
ceeded the express authority given to him. 

Sometimes the principal is undisclosed. An 
undisclosed principal is liable for the acts of his 
agent, if he is discovered. The principal may at any 
time make himself known and openly adopt the acts 



COMMERCIAL LAW 87 

of his agent. Whether he adopts them or not, he 
is liable as soon as he is disclosed as the principal. 

agents' wrong doings. 

A principal is oftentimes liable for the wrongs 
committed by his agent , but only when the agent is 
acting within the scope of his authority. A princi- 
pal is always liable for the wrongs of his agent when 
he has commanded them, or when he has adopted 
them after they have been committed. 

Where an agent is negligent in the performance 
of his duties and injury results therefrom, the prin- 
cipal is liable. A common example of this sort is 
where injuries result to passengers on railroads, 
through the negligence of employes. The employes 
are the agents of the railroad company, which is the 
principal. The company is liable for the negligence 
of its agents; but as in other cases, the negligence 
must pertain to something within the scope of the 
agent's employment. It makes no difference that the 
principal may not have known of the negligence of 
the agent, or that he may have expressly cautioned 
the agent against it. 

It has been held that a principal is not liable for 
willful and malicious acts of his agent, unless such 
acts can be construed as pertaining to the agent's 
employment. It has been decided by the courts 
that a street car company, for example, is not liable 
for the acts of a conductor for an assault upon a 
passenger, when the trouble between them arose out 
of something which did not pertain to the company's 
business. In such a case the assault is not com- 
mitted by the conductor as the agent of his com- 
pany, but simply as an individual. 



88 COMMERCIAL LAW 

Where an agent during the course of his em- 
ployment commits a fraudulent act, and a third 
person is injured thereby, the principal is liable. 
To illustrate: If a clerk in a store represents a 
"bogus" article as genuine, and a customer, relying 
on such representation, buys it, then the principal is 
liable for the fraud. And this whether the principal 
had knowledge of the agent's misrepresentations or 
not. The reason for this is explained by the rule, 
that where one of two innocent persons must suffer, 
the one who is least to blame should escape. So it 
has been held that the person who employs a dis- 
honest clerk, and holds him out to the public as an 
honest person, should lose rather than a stranger. 

As a rule, the principal is not liable for the 
criminal acts of his agent, unless he has commanded 
them, in which case they become his own acts in law. 
If the agent, without the knowledge or consent of 
the principal, commits a crime the agent alone is 
responsible. 

COMPENSATION. 

Compensation to be paid an agent depends 
usually upon the contract which he has with his 
principal. It very often happens that an agent's 
compensation is taken in the form of a commission, 
his wages thus depending upon his success in the 
business which he undertakes. Contracts between 
principals and agents are governed by the same rules 
as other contracts. 

The relation existing between the principal and 
agent is fiduciary, and if an agent collects money be- 
longing to his principal which he fails to turn over, 
he is guilty of embezzlement. An agent may charge 



COMMERCIAL LAW 89 

his principal for all expenses and advances which he 
is obliged to make in the course of his employment. 

Ordinary skill and diligence are required to be 
exercised by agents. If, through their negligence or 
lack of skill in the employment which they under- 
take, an injury results to the principal, they are per- 
sonally liable. As in partnerships, absolute good 
faith is essential between principal and agent, and 
especially is this so on the part of the agent who is 
entrusted with the business of another. 

It is the duty of an agent to follow the instruc- 
tions of his principal, and as long as he does so he is 
not liable for an injury or loss that may occur. It is 
his duty to deposit money in his principal's name 
and not in his own. He should not mix his princi- 
pal's money or property with his own. When an 
agent fails in his duties as to good faith, instruc- 
tions, skill, diligence, care of property or money, and 
loss occurs as a result, he is personally liable to his 
principal. 

It is also the duty of an agent to keep accurate 
accounts of all of his transactions and to be able to 
report to his principal at any time, upon reasonable 
demand. 

Where an agent speculates upon his principal's 
money, anything gained thereby belongs to the 
principal. If there is a loss the agent, being without 
authority to speculate, must bear it. Many agents 
lose the money of their principals in this way, and 
afterwards, being unable to make an accounting, are 
prosecuted for embezzlement. 

PERSONAL LIABILITY OF AGENTS. 

There are certain cases in which an agent may 
bind himself personally. If he is acting as an agent 



90 COMMERCIAL LAW 

for an undisclosed principal and the principal is not 
discovered, the agent is liable personally; or, if the 
agent is known to be such, but it is not known for 
whom he acts, then he is personally liable. He is 
also liable personally when he goes outside of the 
scope of his authority. He can only bind his prin- 
cipal when acting in what appears to be and what 
usually is the scope of authority for agents in his line 
of business. If an agent so desires, he may make a 
contract in such a form that he will bind not only 
his principal, but himself as well. An attorney is 
usually simply the agent of his client. It often 
happens that attorneys sign bonds, together with 
their clients, or, sometimes, having power to sign a 
client's name, they sign both. In such a case the 
attorney being the agent of the client, binds both 
the client and himself by the contract. An agent 
in buying goods may, without any written contract, 
bind himself by express agreement to pay. 

There are cases where both the principal and 
the agent are liable for the wrongs of the agent. 
Take the case where an injury results to a passenger 
on a railroad, from the negligence of an agent. Both 
the railroad company and the employe are liable to 
the injured party. In such cases, suits for damages 
are nearly always brought against the railroad com- 
pany alone, but this is for the reason that railroad 
companies are usually able to pay, while their em- 
ployes as a rule are not. A suit against an employe, 
so far as money reward is concerned, would amount 
to nothing. 

TERMINATION. 

It is a rule that the principal has the right to 
withdraw the agent's authority at any time. An 



C O M M ERC I AL LA W 91 

agent cannot insist upon acting after his principal 
has withdrawn authority. 

The agent may also terminate the relation by 
refusing to act further. If an injury results to the 
principal from such refusal, the agent will be liable. 

The agency may be terminated by lapse of 
time — that is, the time of the employment may have 
expired or the thing to be done may have been com- 
pleted. Completion of the subject matter of the 
contract will always work a termination of the 
agency. If either the principal or agent becomes 
insane or dies, the agency will be terminated. 
Where the principal becomes a bankrupt, all con- 
tracts which he may have made with agents are at 
an end. In such cases the law appoints an agent, 
usually called a trustee, who has charge of his affairs. 



Review Questions. 

I. What is agency? What is the general rule of law as 
to a person acting through an agent ? Who is the principal, 
and who is the agent? Is an agency relationship contractual? 
May the contract be either written or oral? What agency 
contracts must be in writing? Is it always necessary that an 
agent's contract be made in advance of the thing to be done? 
Explain how the relation of principal and agent may exist 
where a contract is not made in advance. 

II. Name the different kinds of agents. Define an uni- 
versal agent. Define a general agent. Define a special agent. 
Who are sub-agents ? What is meant by a public agent ? 

III. Do the rules governing contracts apply to the prin- 
cipal and the agent? Explain the difference in this regard 
between the principal and the agent. May a person who is 
incapable of acting as principal sometimes act as agent ? What 
kind of agency contracts may a minor make where he is prin- 
cipal? Give an example. 

IV. When should a power of attorney be acknowledged, 
and when should it be recorded? When should it be under 
seal? 



92 COM M ERC I AL LAW 

V. Upon what does an agent's authority depend? Does 
a general agent have any implied authority? Give example 
and explain the difference in this regard between a general and 
special agent. Is it the duty of a person dealing with an agent 
to inquire as to his authority? Is this especially true as to 
special agents? Give a concrete illustration which shows the 
difference between the authority of a general and special agent. 
When are contracts made by an agent binding upon the princi- 
pal? If an agent makes a contract for his principal which is 
binding upon the principal, will the agent also be liable? When 
is a person bound by the acts of his agent, even though the agent 
has exceeded his authority? What is meant by undisclosed 
principal? Is the agent of an undisclosed principal liable for 
his acts? If the undisclosed principal is discovered, does he 
become liable ? 

VI. Is the principal liable for the wrongs committed by 
his agent? When is he so liable, and when not so liable? Is 
the agent also liable for the wrongs which he commits? When 
injury results from the negligence of an agent, is the principal 
liable? When is the principal not liable for the willful or 
malicious acts of his agent? Give examples. Is the principal 
liable for the fraud of his agent? Give an example. What 
can you say as to the liability of the principal for the criminal 
acts of his agent ? 

VII. How is the matter of an agent's compensation 
regulated? Are contracts between principal and agent in this 
regard governed by the same rules as other contracts? Where 
an agent fails to turn over money which he has collected, and 
which belongs to his principal, is he guilty of any crime, and if 
so what? Does the law require that agents should exercise 
ordinary skill and diligence, and if they fail in this regard will 
the law compel them to suffer? What can you say as to good 
faith between principal and agent ? Is there any obligation upon 
the agent to follow the instructions of his principal? What 
can you say as to the handling of money belonging to the princi- 
pal? What can you say as to accounts kept by an agent? If 
an agent speculates upon his principal's money, and gains 
thereby, to whom does the increase belong? If he loses, who 
must stand the loss ? 

VIII. When is an agent personally liable? Give as many 
examples as you can. When are both principal and agent 
liable? Give as many examples as you can. 

IX. How may the agency relation be terminated? Has the 
principal a right to terminate it at any time ? Has the agent the 
same right ? When is an agent liable for terminating an agency ? 
Name the different methods by which agencies may be terminated. 



VI. 

INSURANCE 

To insure means to make sure, secure, safe ; to 
indemnify against loss. 

In business, insurance is a contract whereby 
one party undertakes to indemnify another, or some 
one they may agree upon, against loss in the event 
of certain contingencies. 

The person who agrees to indemnify against 
loss is called the insurer. Usually, such persons are 
corporations organized for the specific purpose of 
carrying on insurance business. The person who, 
or whose property, is insured is called the insured. 
The person to whom the money is to be paid, in the 
event of loss, is called the beneficiary The contract 
made between the parties is called the policy; and 
the amount paid by the insured to the insurer, as 
consideration, is called the premium. The premium 
is usually a stipulated amount to be paid annually ; 
and sometimes semi-annually or quarterly. Policies 
are issued now and then where the whole premium 
is paid in advance. 

The subjects of insurance are property, life, 
and health. In fire and marine insurance the sub- 
ject is property. In life and accident insurance, 
the lives and health, or freedom from physical in- 
juries of human beings, are the subjects. Contracts 
are also made upon the fidelity of agents and 
trustees, and upon the honesty of customers and 
debtors; also upon titles to realty and upon valu- 
ables against theft; upon plate glass windows 

93 



94 COMMERCIAL LAW 

against breakage; upon steam boilers against ex- 
plosion, and sometimes upon the lives and good con- 
dition of domestic animals. Insurance companies 
in recent years have also branched out into other 
lines; but the commonest kinds, and those which 
best illustrate the principles, are fire, life, marine 
and accident insurance. In general, it may be said 
that insurance is applicable to protect people against 
uncertain events which may in any wise be of dis- 
advantage to them 

FIRE INSURANCE. 

A fire insurance policy always describes min- 
utely the property insured. The amount for which 
the property is insured, and the premium to be paid 
must also be a part of the contract. The time at 
which the contract expires is given to the minute, 
which is usually at twelve o'clock, noon, on a certain 
day. This accurate statement of time is important, 
as the law will not recognize fractions of days in the 
absence of a specifically named hour. 

Under the law in the United States, it is neces- 
sary that the insured should have what is called an 
"insurable intere t" in the property protected. 
The general rule is that one who derives some 
benefit from the existence of the property and who 
would suffer loss from its destruction has such an 
interest. Persons holding mortgages on property 
have been held to have insurable interests, but only 
to the amount of the debt secured. Where the debt 
is paid, the mortgagee no longer has an insurable 
interest and cannot recover in the event of loss. 

Corporations being the principal persons en- 
gaged in the business of insurance, their affairs are 



COM MERC I AL LAW 95 

necessarily carried on entirely by agents. Policies 
of insurance usually contain clauses to the effect 
that no agreements or stipulations not contained in 
the policy shall have any binding effect upon the 
insurer. For this reason it is important that the 
insured should always read the policy carefully be- 
fore accepting it. If the agent tells him one thing 
and he relies upon it, and later it is discovered that 
the policy recites another and different thing, the 
recitals in the policy will govern. 

The rate of premium to be charged depends 
upon the character of the risk. It would, of course, 
be higher for an old frame building than for a 
modern stone or steel structure. If, during the 
continuance of the policy, alterations are made 
which would make the risk more hazardous, the 
insurer may avoid the policy. It is also a general 
rule that the insured shall not move the property 
from place to place without the consent of the 
insurer. 

It often happens that the insured may desire 
to sell the property before the expiration of the 
policy. In such cases the policy can be assigned 
to the purchaser, but the consent of the insurer 
should always be obtained to such assignment 

Where a policy is issued against a loss by fire, 
no recovery can be had for a loss from another 
cause; but a policy against fire will cover a loss 
caused by water used in extinguishing the fire, and 
sometimes a loss from theft while the goods are being 
removed to a place of safety. Fire policies have 
been held in certain cases to cover loss by lightning 
where there was ignition. 

In order to check the tendency of dishonest 



96 COMMERCIAL LAW 

persons to burn their property for the sake of in- 
surance money, it is the usual rule that the insurer 
may replace the loss or repair or rebuild, instead of 
paying the amount called for by the policy. The 
insurer generally has the right to elect as to which 
of these courses he will adopt. 

The amount of insurance stated in the policy 
is the maximum which can be recovered by the in- 
sured in any event. If there is only a partial loss 
by fire, only a proportionate amount of the policy 
can be recovered by the insured. 

Parties, instead of taking all their insurance in 
one policy may take several policies and distribute 
them among different companies. There is no ob- 
jection to the insured having as many policies as he 
thinks necessary, so long as he does not go so far as 
to arouse suspicion. 

LIFE INSURANCE. 

Life insurance has become much more popular 
than it was a few years ago. It used to be said that 
one had to die to win. This is no longer so. As 
life insurance companies are conducted nowadays, 
it is almost impossible for the insured to lose, if he 
makes anything like an honest effort to comply 
with his part of the contract. The old, ordinary 
life policies, so called, are being largely replaced by 
endowments. In these old life policies, usually the 
insured had to die before the contract would mature. 
While this might be well enough for the beneficiary, 
it afforded little satisfaction to the insured himself. 
Under endowment policies the premium is paid for 
a certain number of years, at the end of which time 
the insurance is to be paid to the insured. If the 



COM MERC I AL LAW W7 

insured dies prior to the time when the policy will 
mature as an endowment, the amount of the policy 
is paid over to the estate of the insured, or to the 
beneficiary named therein. By this plan, the party 
insured may have hopes of receiving the insurance 
himself. 

Investment is an important feature of endow- 
ment policies. There are many life insurance com- 
panies in the United States to-day which are con- 
ducted upon the safest and surest possible basis. 
Through their endowment policies they open up a 
double opportunity for young men of small or 
moderate means. In the first place, they afford 
protection for those who are dependent, and also 
offer a safe opportunity for saving and investment. 
By this means also, where the number of annual 
premiums to be paid is limited, one may protect him- 
self thoroughly, so far as life insurance is concerned, 
during his younger days, when his earning capacity 
is greatest ; not being harassed by the constant fear 
of being unable to meet a premium during his de- 
clining years. Persons who want to accumulate a 
fund by a certain time in the future often invest in 
these endowment policies for that purpose. 

At the expiration of an endowment policy the 
holder usually has the option of taking either a paid 
up policy for life, or a gross sum in cash. In some 
policies also there is an agreement to purchase for 
cash the policy at its then valuation at any time 
during the period for which it runs. This is called 
the cash surrender value plan. If one finds himself 
unable to carry out his contract, he can take ad- 
vantage of the cash surrender value. 



98 COMMERCIAL LAW 

INSURABLE INTEREST. 

The beneficiary in a life policy must have an 
insurable interest in the insured. Otherwise, the 
policy will not be good. A wife has such an interest 
in her husband or a husband in the wife ; a child in 
the lives of its parents or the parents in the lives of 
their children; a brother or sister in the life of a 
brother or sister. In fact, anyone may be a bene- 
ficiary in a life policy where the death of the person 
who is insured would result in financial disadvantage 
to him or her. 

In Great Britain the law is different. There an 
insurable interest is not necessary. Examples of 
this difference were recently furnished by the numer- 
ous policies taken out on the life of the king by 
business men anent the coronation. Policies of this 
kind would not be good in the United States. 

The rate of premium to be paid on a life policy 
depends upon the age and health of the insured. 
There are regular and well established tables of 
rates for both life and endowment policies, based 
upon the life expectancies of persons at different 
ages. These tables are the result of years of ex- 
perience and as a general rule are accurate, though 
any given person may live much longer or die 
sooner than the rules would indicate. 

ACCIDENT INSURANCE. 

Accident insurance is a species of life insurance 
based upon the risk which is taken, owing to the 
character of the business which the insured may be 
engaged in. Where the risk is extra hazardous, a 
larger premium is charged. The amount of the 
insurance is always stated in the policy, and it is 



COMMERCIAL LAW 99 

usually provided that a specific amount will be paid 
in the event of death by accident , a less amount in 
the event of loss of limbs, and a still smaller amount 
for the loss of one limb. Provisions are also fre- 
quently made for certain weekly or monthly allow- 
ances, where the insured is temporarily disabled. 

As indicated at the beginning of the subject, 
there are many different lines in which insurance 
companies are now engaged. Some of them have 
even gone so far as to insure against loss through 
suits against employers for personal injuries to their 
employes. In this way many concerns, having 
large numbers of employes, turn the matter of ad- 
justing claims for personal injuries over to insurance 
companies, and in the event of suits, the insurance 
companies furnish lawyers to defend them. 

While an insurance contract is in the nature of 
a wager, the insurer agreeing for a small sum to pay 
a larger sum in the event of loss, the courts have 
held that it does not contain the essential elements 
of gambling, and that its features are salutary and 
now almost an absolute necessity for the protection 
of business enterprises, and for the welfare of those 
that are left without support. 



Review Questions. 

I. What does the word insurance mean? Give the best 
definition you can for insurance as a business term. Explain 
what is meant by insurer, insured, beneficiary, policy, and 
premium. What are the subjects of insurance? What are 
the most common forms of insurance? Name as many different 
classes of insurance as you can. What can you say about the 
general application of insurance to life and business? 

L*f£ 



100 GOMMERCIAL LAW 

II. Name the different elements which a fire insurance 
policy always contains. Explain why it always expires at a 
certain hour of a certain day. What is meant by insurable 
interest ? When has a person an insurable interest in property ? 
Does a mortgagee have an insurable interest in property against 
which he holds a mortgage? Does this interest continue after 
the debt is paid ? What kind of persons are principally engaged 
in the insurance business ? If a verbal agreement is made with 
an agent, and the policy issued by the company contains a 
different agreement, which will govern? Upon what does the 
rate of premium to be charged depend ? If during the continu- 
ance of the policy alterations are made, what is the effect ? May 
the insured move the property from place to place without the 
consent of the insurer? If the insured sells his property may 
he assign the policy? If a policy is issued against loss by fire 
can recovery be had from loss for another cause? Explain 
what kinds of losses fire insurance policies cover. May the 
insurer either pay the hmount called for by the policy, or re- 
place the property or repair or rebuild? Explain why the 
insurers usually have an option in this regard. Where property 
is totally destroyed and its value is not as great as the amount 
for which the policy was issued, can the insured recover the full 
amount of the policy ? May persons take policies in different 
companies covering the same property ? 

III. What can you say of the popularity of life insurance 
as compared with a few yea ago ? What kinds of policies are 
most frequently issued nowadays How does an endowment 
policy differ from an ordinary life policy ? Name the different 
advantages of endowment policies. At the expiration of an 
endowment policy what may the holder do? Is it necessary 
that the beneficiary in a life policy have an insurable interest 
in the insured? What is meant by insurable interest in a life 
policy ? How does the law in the United States differ from the 
law in Great Britain in this regard? Give an example. Upon 
what does the rate of premium of a life insurance policy depend ? 
Upon what are premium rates based? 

IV. What can you say of accident insurance? What are 
the advantages of accident insurance ? What can you say as to 
the different classes of insurance indicated by the development 
of the last few years? Do insurance contracts — there being 
an agreement that for the payment of a small sum, a larger sum 
will be paid in the event of loss — contain the elements of gam- 
bling? 



VII. 

PROPERTY— REAL AND PERSONAL. 

Property is that which is one's own; some- 
thing that belongs to or inheres exclusively in an in- 
dividual. In an abstract sense, it is ownership, 
title, estate, right; in a concrete sense, the thing 
itself which is owned. 

The right of property is that sole and despotic 
dominion which one person claims and exercises 
over certain external things in total exclusion of the 
rights of every other individual in the world. 

Standing alone, the term " property' ' includes 
everything that is the subject of ownership. 

Different property classifications are made, as, 
corporeal and incorporeal; real and personal. 

Corporeal property has a substantive existence. 
Lands, buildings, domestic animals, goods and 
chattels of all kinds are examples. In fact, any 
concrete thing capable of being owned is corporeal 
property. The term means that which has body 
or substance. 

Incorporeal property does not have body or sub- 
stance. Incorporeal is the negative of corporeal. 
It is only in contemplation of law that incorporeal 
property exists. It consists of rights. The right 
of way — road or foot path — which one person has 
over the land of another, in order that he may reach 
his own, is an example. Where one's land is entirely 
surrounded by the land of another, he always has 
the right of a passageway over the other's land. 
Such a right is called an easement. An easement 
is any right or enjoyment which one person has in 
the land or estate of another. Easements are the 
best examples of incorporeal property, 

101 



102 COM M ERC I AL LAW 

Legally, the real and personal property divisions 
are more important. 

REAL PROPERTY. 

Real property consists principally of land. 
Buildings and other things which become perma- 
nently fixed to the land are always considered as a 
part thereof, and are therefore included in the term 
real property. But the land is the important and 
basic element. It is said that real property is such 
as is immovable. A distinction is sometimes made 
between real property and real estate. The former 
represents he property itself, while the latter fre- 
quently represents only an interest that one may 
have in real property. 

Personal property, on the contrary, is such as 
is movable It is such property as a person can 
take with him wherever he goes. It is often re- 
ferred to as goods and chattels. A person may 
sometimes have a personal estate in real property. 
As an example, it is universally held that a mort- 
gage is personal property. As a mortgage, it can 
be carried with its owner wherever he goes and at 
the same time it represents an interest in real prop- 
erty. 

The interests which one has in real property as 
such is said to be an estate. These are such as in- 
heritable and life estates, fee simple estates, estates 
in dower, and estates by curtesy. 

The term "freehold estate" includes both 
estates for life and inheritable estates. An inherit- 
able estate is one that may survive the original 
owner and at his death descend to his heir at law. 
An estate for life is one that terminates with the life 



COMMERCIAL LAW 103 

of the original owner or tenant or the life of some 
other person. It means what its title indicates, that 
it is measured by life. 

A fee simple estate is the largest and best 
possible estate one can have. It includes all other 
estates. When one has title to land in fee simple, 
he has absolutely the best and most complete title 
known to the law. He may do with his land exactly 
as he pleases. He may mortgage it, he may sell it, he 
may will it to whomsoever he pleases, or he may 
allow it to descend to his heirs. On the contrary, 
one who has only a life estate simply has the use of 
the land with all its advantages during his life, but 
is not permitted to do any act which will impair the 
value of the property. 

An estate of dower is the interest which a sur- 
viving wife has in the real property owned by her 
husband during his life. It is usually a life estate 
in one-third of his real property. This is regulated 
by the statutes of the different states, and where 
questions arise the statutes should be consulted. 
It is impossible for a husband to defeat his wife's 
right of dower by selling or disposing of his property. 
This is the reason why it is always necessary for a 
wife to join with her husband in conveyances. If 
she does not do so, her right of dower will not be cut 
off. 

An estate of curtesy is the interest which the 
husband takes in his wife's real property after her 
death. What is dower to the wife is curtesy to the 
husband. In some states curtesy has been abolished. 
Curtesy, like dower, is regulated by statute. 

TITLE. 

Title to real property is transferred by deed, 



104 COMMERCIAL LAW 

where the transfer is made during the life of the 
owner. Title may also pass by descent where the 
owner dies intestate, or by will where the owner 
dies testate. As a rule, neither a husband nor a 
wife can defeat the interests of the other by will. 
Where either undertakes to so defeat the other by 
will, the other may renounce the will and take what 
the law would allow, as though there were no will. 

The most usual method of passing title to real 
property is by deed from the vendor to the vendee — 
that is, from the seller to the purchaser. A deed is a 
form of contract — executed contract, as we have seen. 
It recites the name or names of the grantors and of 
the grantee or grantees, also the consideration with a 
description of the property conveyed. While there 
must be a consideration it is not necessary that it 
be adequate — that is, equal to the value of the land. 
It is now universally held by the courts that what- 
ever consideration may be recited in the deed, the ac- 
tual consideration may be shown by outside evidence. 

The most important classes of deeds are war- 
ranty deeds and quit claim deeds. By a warranty 
deed, the grantor warrants the title to the land 
which he conveys. This covenant of warranty runs 
with the land, and if the title turns out to be bad, 
his immediate grantee or any subsequent grantee 
can hold him on his covenants of warranty for any 
loss that he may sustain through defects in the title 
previous to the making of the warranty deed. A 
quit claim deed simply releases and quit claims 
whatever interests the grantor may have. It does 
not warrant anything. If the grantor has no title, 
no matter. By his quit claim he only gives up that 
which he has, be it great or small. 



COM M ERC I A L LAW 10S 

The following are forms of deeds : 

WARRANTY DEED — LONG FORM. 
(Spaces for names and description of property in blank.) 

THIS INDENTURE, Made this day 

of in the year of our Lord One Thousand 

Nine Hundred and BETWEEN 



of the in the County of 

and State of party of 

the first part, and 

of the in the 

County of and State of 

party of the second part. 

WITNESSETH, That the said party of the first part, for 

and in consideration of the sum of 

Dollars, in and paid by the said 

party of the second part, the receipt whereof is hereby acknowl- 
edged, and the said party of the second part forever released 
and discharged therefrom, ha. . . .granted, bargained, sold, re- 
mised, released, conveyed, aliened and confirmed, and by these 
presents do. . . .grant, bargain, sell, remise, release, convey, 

alien and confirm unto the said party of the second part 

heirs and assigns forever, all the following 

described lot piece or parcel of land, situated 

in the County of.. and State of 

and known and described as follows, to-wit: 



TOGETHER WITH ALL AND SINGULAR the heredita- 
ments and appurtenances thereunto belonging, or in any wise 
appertaining, and the reversion and reversions, remainder and 
remainders, rents, issues, and profits thereof; and all the estate, 
right, title, interest, claim, or demand whatsoever, of the said 
party of the first part, either in law or equity, of, in, and to the 
above bargained premises, with the hereditaments and appurte- 
nances: TO HAVE AND TO HOLD the said premises above 
bargained and described, with the appurtenances, unto the said 

party of the second part 

heirs and assigns, forever. 



106 COMMERCIAL LAW 

AND the said 

party of the first part, for and heirs, exec- 
utors, and administrators, do covenant, grant, bargain 

and agree, to and with the said party of the second part, 

heirs and assigns, that at the time of the ensealing and delivery 

of these presents, well seized 

of the premises above conveyed, as of good, sure, perfect, abso- 
lute, and indefeasible estate of inheritance in law and in fee 

simple, and ha good right, full power, and lawful authority 

to grant, bargain, sell and convey the same in manner and form 
aforesaid, and that the same are free and clear from all former 
and other grants, bargains, sales, liens, taxes, assessments and 
encumbrances, of what kind and nature soever; and the above 
bargained premises, in the quiet and peaceable possession of 

the said party of the second part heirs and 

assigns, against all and every other person or persons lawfully 
claiming or to claim the whole or any part thereof, the said 
party of the first part shall and will Warrant and Forever 
Defend 



AND the said party of the first part hereby expressly waive 

, release and relinquish unto the said party of the 

second part,.. heirs, executors, administrators 

and assigns, all right, title, claim, benefit, privilege, advantage 
and exemption, in and to the above described premises, and 
each and every part thereof, which is given by or results from 

any and all laws of the State of 

pertaining to the exemption of homesteads. 

IN WITNESS WHEREOF, The said party of the first 

part hereunto set.... hand and seal 

the day and year first above written. 

Signed, Sealed and Delivered in the Presence of 



..[seal.] 
..[seal.] 
..[seal.] 
..[seal.] 



COM M ERC I AL LAW 107 

WARRANTY DEED — SHORT STATUTORY FORM. 

(Blank spaces for names and description.) 
THIS INDENTURE WITNESSETH, That the Grantor.... 



of the in the County of 

and State of for and in consideration of the 

sum of Dollars, in hand paid, 

CONVEY and WARRANT to 



of the County of and State 

of the following described Real Estate, to-wit: 



situated in the - ...of in the 

County of in the State of hereby 

releasing and waiving all rights under and by virtue of the Home- 
stead Exemption Laws of this State. 



DATED, This day of A. D. 190.... 

-— [seal.] 

[seal.] 

[seal.] 

[seal.] 

QUIT CLAIM DEED — SHORT STATUTORY FORM. 
THIS INDENTURE WITNESSETH, That the Grantor, 



of the in the County of 

and State of for the consideration of 

Dollars, 

CONVEY....and QUIT CLAIM....to 



of the County of and State 

of all interest in the following described Real 

Estate, to-wit: 



108 COMMERCIAL LAW 



situated in the County of in the State of 

hereby releasing and waiving all rights under and by 

virtue of the Homestead Exemption Laws of this State. 

DATED This day of A.D. 190... 

..... [seal] 

[seal] 

[seal.] 

[seal.] 

The following form of acknowledgment may 
be used for any of the foregoing deeds : 

State of \ 

y ss. 
County of \ I, 

in and for said County, in the 

State aforesaid, Do Hereby Certify, That 



personally known to me. to be the same person....whose 
name subscribed to the foregoing in- 
strument, appeared before me this day in person, and 

acknowledged that he signed, sealed and delivered 

the said Instrument as free and voluntary 

act, for the uses and purposes therein set forth, including 
the release and waiver of the right of homestead. 

Given Under my hand and seal, this 

day of... A D. 190 



A Notary Public is usually the most convenient 
officer for taking acknowledgments. 

The long form of warranty deed is used where 
there are no statutory provisions for shorter forms. 
In Illinois and several other states, short forms for 
deeds have been provided by statute. They simply 
convey by the use of the fewest possible words. 

Deeds of all kinds should always be acknowl- 
edged by the grantor or grantors and filed for record 



COMMERCIAL LAW 109 

in the office of the recorder of deeds of the county 
where the land is located. This recording of deeds 
is of the greatest importance. Quiet and peaceable 
possession of land being essential to the security 
and welfare of society, public records are kept of all 
titles. To these records any one may go and find 
out in whom the title to any given piece of property 
stands These records serve as a notice to all the 
world of the interests which the different owners 
have in the various tracts of land in the community. 
And it is through these records that the title to 
land is traced. 

If A conveys a certain piece of property to B 
and later conveys the same property to C, and C 
records his deeds previous to the time when B re- 
cords his, C will have title as against B, though his 
deed may bear a later date. This is for the reason 
that B was negligent and allowed the public record 
to show that A was the owner of the property, when, 
as a matter of fact, he was not, and when B 
might have put the world on notice to the contrary, 
by recording his deed. B and C, both being inno- 
cent and B being negligent, he must suffer. The 
rule is that where a loss must fall upon one of two 
innocent parties, he, who by the exercise of due care 
might have prevented it, must bear it. 

It is important in the acknowledgment of deeds 
that the recitals as to the waiver of the right of 
homestead appear in the acknowledgment, as well 
as in the body of the deed. The deed and the ac- 
knowledgment should also show the capacity in 
which the parties appear. That is, if the grantors 
are John Smith and Mary Smith, who are husband 
and wife, it should so appear. Usually, the recitals 



110 COMMERCIAL LAW 

are that John Smith and Mary Smith, his wife, 
appeared before me, etc. If a bachelor conveys, 
it should be recited both in the deed and the ac- 
knowledgment that he is a bachelor. Otherwise, 
lawyers in passing upon the title might raise the 
question as to the interests of a wife. Likewise, 
where an unmarried woman conveys, the deed 
should recite that she is a spinster; and so on with 
widows or widowers. 

It might also be added that title to real estate 
may pass through judgments and decrees of courts. 
If the owner of property allows judgment to be ob- 
tained against him, his property may be sold on ex- 
ecution, and if he fails to redeem within the time 
allowed by law, the sheriff will issue a deed which 
will pass title to his property. Where different 
persons are interested in the same piece of land and 
are not able to come to an agreement as to a proper 
division among themselves, either one of those in- 
terested may apply to the courts by filing a bill for 
partition. The court will hear the matter, and if 
the land is incapable of being divided to suit the 
occasion, will direct a sale and divide the proceeds 
of the sale among those interested. Such a sale 
will pass title to the land as effectively as though 
all had joined in the deed in the first instance. 
There are other ways through which title is passed 
by legal proceedings, but these will suffice as ex- 
amples. 

LANDLORD AND TENANT. 

The term tenant in its largest sense, means 
anyone who holds lands, whatever the nature or 
extent of his interest. In common usage, however, 



COMMERCIAL LAW ill 

it means one who holds land or buildings under 
contract with another who is called the landlord. 
The landlord is he of whom land is held subject to 
the payment of rent or rendering of service. While 
the landlord is usually the owner he is not neces- 
sarily so. The same person may occupy the posi- 
tion of both landlord and tenant. This state of 
affairs exists where a party rents premises from one 
and sublets a part or all of same to another. As to 
the person from whom he rents, he is a tenant, but 
as to the person to whom he sublets he is a landlord. 

The contract by which the landlord rents to the 
tenant, whether verbal or written, is called the lease, 
and the compensation to be paid by the tenant to 
the landlord is called rent. 

There is a notion which prevails quite exten- 
sively that where a tenant has no written contract, 
he has no lease. This is a mistake. An oral or 
verbal lease for any period not within the statute 
of frauds is as good as a written lease. Wherever 
the relation of landlord and tenant exists, there is 
a lease. The term lease is simply another name for 
the contract. In some states under the statute of 
frauds, a lease for more than one year must be in 
writing, as previously pointed out. In other states 
the limit is raised to three years. State legislatures 
have the power to make any regulations in this line 
which they may deem proper. 

Ordinarily leases which are made from month 
to month, or from year to year, need not be in 
writing, and, if in writing, need not be under seal. 

A lease is generally held to be a conveyance of 
an interest in land, and where the period of time 
covered is long, recording is necessary under the 



112 COMMERCIAL LAW 

statutes of most states. In Illinois, a lease for a 
longer period than five years must be recorded. 
Time requirements in this regard are different in 
different states. Leases which are to be recorded 
must, of course, be written and are usually under 
seal. 

The landlord is frequently termed the lessor 
and the tenant the lessee. The parties may make 
almost any agreement suitable to themselves. The 
essential elements are that the tenant shall occupy 
and have the use of the premises with the consent 
of the landlord, and pay rent therefor. As to re- 
pairs, taxes and any other expenses pertaining to 
the premises, there may be agreements between 
the parties suitable to the occasion. Sometimes 
the lease will provide for repairs by the landlord. 
On the other hand, the tenant not infrequently 
binds himself to repair, pay taxes, and so on. 

The statutes of the different states provide 
legal methods for dispossessing a tenant who fails 
to live up to his lease. For non-payment of rent 
a tenant can be dispossessed within a few days, 
in nearly every state in the Union. Where a tenant 
fails to pay his rent on the day it is due, in Illinois, 
the landlord may serve him with what is called a 
five days' notice. This notice informs him that 
his rent is due, that demand is made, and that unless 
there is payment within five days his lease to the 
premises in question will be terminated. If the 
tenant does not pay his rent within the five days 
mentioned, the landlord may then begin proceed- 
ings against him in forcible entry and detainer. 
Five more days are required before the suit can be 
tried. If the court finds that the tenant is in de- 



COMMERCIAL LAW 113 

fault, judgment for possession will be entered in 
favor of the landlord. After judgment, the tenant 
has five days in which to carry the case to a higher 
court by appeal. If he appeals, he is obliged to 
give a good and sufficient bond to pay all the rent 
that is due or that may become due on the lease 
while the appeal is pending If he does not appeal, 
the court will, at the end of the five days, issue a writ 
of restitution. Under this writ, an officer of the 
court will dispossess the tenant, removing his prop- 
erty and his person and restore the premises to the 
landlord. This terminates the lease and the land- 
lord is again free to rent his property to some one 
else. 

The fact that the landlord has sued for and 
obtained judgment for possession does not prevent 
him from suing and obtaining judgment for the rent 
which was due previous to the termination of the 
lease by notice. After the lease is terminated, the 
obligation upon the tenant to pay in accordance 
with its terms is, of course, ended. 

If a tenant rents property for any given period, 
and vacates the premises without the consent of 
the landlord before the expiration of that period, 
he is liable to the landlord for the rent the same as 
though he had not vacated. If the landlord subse- 
quently, and before the expiration of the lease, 
relets the premises to another party for a rental 
equal to that called for by the original lease, then 
the liability of the original tenant ceases. If the 
rental to be paid by th second party is not so great 
as that called for by the original lease, then the 
original tenant is liable to the landlord for the differ- 
ence. 



114 COMMERCIAL LAW 

Where a tenant fails to surrender possession 
at the expiration of his lease, he may be dispossessed 
by proceedings similar to those in the case of non- 
payment of rent. 

Tenants sometimes take possession of property 
with the consent of the owner, but without any 
specific agreement as to the amount of rent or as 
to the time over which the tenancy shall extend. 
In such cases, the tenant is liable to the landlord 
for what is called "use and occupation, " and courts, 
in the event of suit, will require the payment of a 
reasonable rental. What is reasonable will be de- 
termined by circumstances and the character of the 
premises. 

In Illinois, and several other states, there are 
statutory provisions to the effect that both the 
husband and the wife shall be liable for family ex- 
penses. Under this statute, it has been held that 
both husband and wife are liable for the rent of the 
premises occupied by them as a home. This lia- 
bility exists even though the husband may have 
signed the lease alone. The law makes both of 
them parties to the contract, and it matters not if 
one or the other has not signed the lease. 

When the lease contains no provisions to the 
contrary, a tenant may assign his entire interest 
to a third party. It is usual, however, for leases to 
provide that there shall not be any assignment with- 
out the consent of the lessor. The fact that the 
tenant assigns to another will not relieve him of h s 
obligation to pay rent to his landlord, unless there 
is an express agreement by the landlord to the effect 
that he will accept the assignee and look to him 
alone for the payment of his rent. If the tenant 



COM M ERCI AL LAW 115 

sublets or assigns, where the lease contains pro- 
visions to the contrary, it is a breach of contract 
and the landlord may te minate the lease. 

Where the tenant fails to pay the rent, the 
landlord may seize and sell any personal property 
found upon the premises, in order to satisfy his 
claim. This is called ''distress for rent." Pro- 
ceedings in distress for rent are usually regulated 
by statute. In Illinois, a landlord must begin suit 
immediately after he des trains his tenant's property. 
By "immediately" is meant within twenty-four 
hours. If the landlord in his distress suit obtains 
judgment for the rent which he claims is due, he 
may hen sell the property which he has seized. 
Tenants, however, are entitled to exemptions 
against distress for rent the same as against execu- 
tions and writs of attachment. 

The following is a form of lease between land- 
lord and tenant : 

LEASE — SHORT FORM. 

THIS INDENTURE, Made this day of 

1 

BETWEEN as lessor, and 

as lessee. 

WITNESSETH, as follows: That the said lessor hath this day 
leased to the said lessee the premises known as 



situated in the City of in the State of 

Illinois, to be occupied as a 

only by said lessee, for and during the term commencing on the 
day of , A. D. 1 , and end- 
ing the day of A. D. 1 , upon the 

terms and conditions hereinafter set forth, and said lessee hereby 
accepts said lease upon said conditions, and covenants to per- 
form the same as follows: 



116 COMMERCIAL LAW 

1st. The said lessee shall pay to the said lessor, at 

in said city of 

as rent for said demised premises for said term, the sum of 

DOLLARS, payable as follows: 

the sum of DOLLARS upon the 

delivery hereof, for rent to the........ day of 

1 , and the further sum of 

DOLLARS, upon the first day of 

each and every month thereafter during the continuance of the 
term hereby created, the same being monthly rent at the rate of 

DOLLARS per month, 

payable monthly in advance. 

2nd. Said lessee agrees to surrender the possession of said 
premises to said lessor upon the termination of the term above 
created or the forfeiture of this lease, as hereinafter provided; 
and further agrees, during the occupancy of said demised prem- 
ises to maintain and keep the same in as good condition and re- 
pair as the same shall be upon taking possession thereof, natural 
wear, injury by fire, or other inevitable accidents excepted — 
damage by fire or other calamity, rendering said premises un- 
tenantable, shall terminate this lease — there shall be no abate- 
ment of said stipulated rent, or any part thereof, so long as said 
lessee shall retain possession of said demised premises, or any 
part thereof. 

3rd. Said lessee agrees to pay the water tax upon said 

premises 

as the same becomes due and payable, and will take reasonable 
and necessary precaution against freezing of the water pipes, and 
that no hair, thread, string or rags, or rubbish of any description, 
or fruit parings or banana skins be allowed to enter the drainage 
or waste pipes of said premises, and will pay all damage or ex- 
pense occasioned by such neglect ; will clean the catch basin and 
furnace as occasion may require, and allow no deposit of ashes 
or other rubbish in or upon said premises, or upon any private 
alley adjacent thereto; no cooking stove or any other cooking 
apparatus shall be placed in any other room except the kitchen 
and laundry. Said lessor shall have reasonable opportunity to 
inspect said premises, and do any repairing or other work thereon 
which he shall deem necessary for the preservation of the property. 

4th. To allow the party of the first part free access to the 
premises hereby leased for the purpose of examining or exhibit- 
ing the same, or making any needful repairs or alterations of said 
premises which said first party may see fit to make; also to 
allow to have placed upon said premises, at all times, notice of 
" For Sale" and "To Rent," and will not interfere with the same. 



COMMERCIAL LAW 117 

5th. Said lessee shall not assign this lease, or any portion 
thereof, nor sub-let said premises, or any part thereof, without 
the written consent of the lessor endorsed thereon. In case 
said demised premises shall be va ated during said term, said 
lessor may take immediate possession thereof for the remainder 
of the term, and in his discretion re-let the same, and apply 
the proceeds upon this lease, the lessee to remain liable for the 
unpaid balance of the rent. 

6th. The neglect or failure of said lessee to keep the fore- 
going conditions or covenants, or any or either of them, shall 
constitute a forfeiture of all rights under this lease, and the fur- 
ther occupancy of said demised premises after such forfeiture 
by said lessee shall be deemed, held and taken as a forcible de- 
tainer thereof by said lessee, and said lessor may, without notice, 
re-enter and take possession thereof, and with or without force 
and with or without legal process evict and dispossess said 
lessee from said above demised premises. 

7th. The party of the second part hereby irrevocably con- 
stitutes and appoints 

or any attorney of any Court of Record for 

and in name on default in any of the cove- 
nants herein to enter appearance in any Court 

of Record, waive process and service thereof, and confess judg- 
ment against in favor of the said party of the 

first part, from time to time, for any rent which may be then due 

by the terms of this lease, with costs and 

Dollars as attorney's fees, and to waive and release all errors 
and all right of appeal from any such judgment or judgments. 

8th. The foregoing covenants shall be obligatory upon 
the heirs, executors, administrators and assigns of the parties 
hereto : 



IN WITNESS WHEREOF, The said parties have hereunto 
set their hands and seals, this day and year first above written. 

[seal] 

[seal.] 

Where a lease contains a confession of judg- 
ment clause, as in the above form, judgment may be 
taken by confession for rent due, as on a judgment 
note. 

Some improvements which tenants add to the 
premises may be removed at the expiration of the 



118 COMMERCIAL LAW 

lease ; others may not. If the improvements are 
such as are fixed and permanent in character, they 
become a part of the realty and are called fixtures. 
Fixtures cannot be removed by tenants. 

MORTGAGES. 

A mortgage is a transfer of property as security 
for a debt. If the debt is paid in accordance with 
the contract, the transfer becomes void. If the debt 
is not paid, the property may be sold to satisfy it. 

The person who gives the mortgage — that is, 
the debtor, is the mortgagor; and the person to 
whom it is given— that is, the creditor, is the mort- 
gagee. The legal ownership is in the mortgagee, 
but in equity, the mortgagor remains the actual 
owner until he is foreclosed by his own default or by 
decree of court. 

Mortgages on real property are being quite 
largely replaced by trust deeds. In a mortgage, 
the debtor conveys direct to the creditor and there 
is only one instrument which recites the obligation 
and conveys the property as security therefor. 
Where a trust deed is used, the debtor gives his 
promissory note to the creditor, and to secure the 
payment of the note in accordance with its terms, 
conveys the property to a third person called a 
trustee. If the note is not paid at maturity, the 
trustee may sell the property and apply the pro- 
ceeds to the satisfaction of the debt. If there is 
more than enough to satisfy the debt, the surplus 
will belong to the debtor who is called the mortgagor 
the same as in the straight mortgage. If the prop- 
erty does not bring enough to satisfy the debt, a 
personal judgment may be obtained against the 
debtor for the balance. 



COMMERCIAL LAW 119 

There are many states in which foreclosure pro- 
ceedings are necessary in the event of default in 
payment of a mortgage or of a note secured by a 
trust deed. By this is meant that the creditor 
must file his bill in a court of chancery and set up the 
facts that there has been default, etc. If he can 
substantiate his bill with proof, the court will enter 
a decree to the effect that the property be sold and 
the proceeds applied toward the satisfaction of the 
debt. If the property sells for more than enough to 
satisfy the debt, the court will direct that the sur- 
plus be paid to the mortgagor. On the contrary, 
if the property fails to sell for enough to satisfy the 
debt, a personal deficiency decree will be entered 
against the mortgagor, requiring him to pay the de- 
ficiency. If he fails to do this, execution will be 
issued against his other property, both real and per- 
sonal. 

Where property has been sold under a fore- 
closure decree of this kind, there is a period of re- 
demption allowed to the mortgagor which is usually 
twelve months. During this period of redemption, 
the mortgagor may, if he can, raise the money and 
pay off the debt together with all accrued interest 
and costs that have been incurred in the foreclosure 
proceedings. If he fails in this within the time 
allowed, a deed will issue and the title to his prop- 
erty will pass out of his hands forever. 

The interest which remains in the mortgagor 
after he has given the mortgage on his property, is 
called the "equity of redemption." Whether it be 
a mortgage or notes and trust deed that are given, 
the parties are called mortgagor and mortgagee; 
the grantee in the trust deed being called the trustee. 



120 COMMERCIAL LAW 

Trust deeds usually provide that in the event of the 
trustee being unable or unwilling to act, that some 
other person or persons shall act in his stead. These 
are called " successors in trust." 

Notes which are ecured by trust deeds fre- 
quently contain recitals that they are so secured, 
though this is not essential. Following are forms 
of trust deed notes and trust deed : 

PRINCIPAL TRUST DEED NOTE. 

190 

after date, for 

VALUE RECEIVED, Promise to pay to the 

Order of..... 

the sum of.. „ DOLLARS, 

at with Interest thereon 

at the rate of per cent, per annum, payable 

annually. 

This Note is secured by a Trust Deed to. 

Trustee, of even date herewith, on real estate in „ 

and is to bear interest at the rate of per cent, per annum 

after maturity. 



INTEREST COUPON NOTE. 

190.. 



DUE TO THE ORDER OF 

DOLLARS, 

on the day of A. D. 190.., without 

grace, at e 

with interest at the rate of per cent, per annum, after 

maturity, being for an installment of interest due on that day upon 

principal Promissory Note, of even 

date herewith, payable to the order of 

years after its date, for the sum of 

DOLLARS, secured by 

Trust Deed upon Real Estate in 



COMMERCIAL LAW 121 

TRUST DEED — SHORT FORM. 
THIS INDENTURE WITNESSETH, That the Grantor...., 

of the in the County of 

and State of for and in consideration of 

the sum of Dollars, 

in hand paid, CONVEY....and WARRANT....to 

of the County 

of and State of 

the following described Real Estate, to-wit: 



situated in the County of , in the State of Illinois, 

hereby releasing and waiving all rights under and by virtue of 
the Homestead Exemption Laws of the State of Illinois, and 
all right to retain possession of said premises after any default 
in payment or a breach of any of the covenants or agreements 
herein contained, in trust, nevertheless, for the following pur- 
poses: 

WHEREAS, The said Grantor...., 

herein justly indebted upon Promissory 

Note bearing even date herewith, payable to the order of 



(Here describe the Notes, both principal and coupon or 
interest notes.) 

NOW, if default be made in the payment of the said 

Promissory Note , or of any part thereof, or the interest 

thereon, or any part thereof, at the time and in the manner 
above specified for the payment thereof, or in case of waste, or 
non-payment of taxes or assessments on said premises, or of a 
breach of any of the covenants or agreements herein contained, 
then in such case the whole of said principal sum and interest, 

secured by the said Promissory Note , shall 

thereupon, at the option of the legal holder or holders thereof, 
become immediately due and payable; and, on the application 

of the legal holder of said Promissory Note , or either of 

them, it shall be lawful for the said grantee, or his successor in 
trust, to enter into and upon and take possession of the premises 
hereby granted, or any part thereof, and to collect and receive 
all rents, issues and profits thereof; and, in his own name or 
otherwise, to file a bill or bills in any court having jurisdiction 



122 COMMERCIAL LAW 

thereof against the said party of the first part heirs, 

executors, administrators and assigns, to obtain a decree for 
the sale and conveyance of the whole or any part of said prem- 
ises for the purposes herein specified, by said party of the second 
part, as such trustee or as special commissioner, or otherwise, 
under order of court, and out of the proceeds of any such sale 
to first pay the costs of such suit, all costs of advertising, sale 
and conveyance, including the reasonable fees and commissions 
of said party of the second part, or person who may be appointed 

to execute this trust, and Dollars 

attorney's and solicitor's fees, and also all other expenses of this 
trust, including all moneys advanced for insurance, taxes and 
other liens or assessments, with interest thereon at seven per 

cent, per annum, then to pay the principal of said note , 

whether due and payable by the terms thereof or the option of 

the legal holder thereof, and interest due on said note up to 

the time of such sale, rendering the overplus, if any, unto the 

said party of the first part, legal representatives 

or assigns, on reasonable request, and to pay any rent that may 
be collected after such sale and before the time of redemption 
expires, to the purchaser or purchasers of said premises at such 
sale or sales, and it shall not be the duty of the purchaser to see 
to the application of the purchase money. 

AND The said grantor— covenant— and agree... .that....he— 
will keep all buildings that may at any time be upon said prem- 
ises insured in such companies as the holder of said notes shall 
direct, for their full insurable value, and make the loss, if any, 
payable to, and deposit the policies of insurance with, the party 
of the second part, as further security for the indebtedness 
aforesaid. 

WHEN The said note....and all expenses accruing under this 
Trust Deed shall be fully paid, the said grantee or his successor 
or legal representatives shall re-convey all of said premises re- 
maining unsold to the said grantor.— or heirs 

or assigns, upon receiving his reasonable charges therefor. In 

case of the death, resignation, removal from said 

County, or other inability to act of said grantee 

then of 

said is hereby appointed and made success- 
or in trust herein, with like power and authority as is hereby 
vested in said grantee. It is agreed that said grantor—shall 
pay all costs and attorney's fees incurred or paid by said grantee 
or the holder or holders of said note.— in any suit in which 
either of them may be plaintiff or defendant, by reason of being 
a party to this Trust Deed, or a holder of said note...., and that 



COMMERCIAL LAW 123 

the same shall be a lien on said premises, and may be included 

in any decree ordering the sale of said premises and taken out 

of the proceeds of any sale thereof. 

WITNESS, The hand....and seal....of the said grantor...., 

this day of A. D. 190...., 

[seal] 

[seal.] 

The note is a negotiable instrument exactly 
the same as any other note, and in a few of the states 
mortgages and trust deeds are also negotiable. The 
last legislature in Illinois made mortgages and trust 
deeds on real property negotiable instruments. 

The note is the principal thing and the trust 
deed is regarded as incidental. In a state where a 
trust deed is not negotiable, the purchaser of a note 
or notes secured by a trust deed would take the 
note free from all defenses as negotiable paper, but 
as to the trust deed, the mortgagor might make 
any defense against a third party that he could 
make against the original holder. The idea of 
making trust deeds negotiable is to avoid such de- 
fenses. In Illinois a purchasef of a note and trust 
deed now takes them both free from defenses, the 
same as other negotiable instruments. 

Mortgages and trust deeds must be acknowl- 
edged and recorded, the same form of acknowledg- 
ment being used as for deeds. 

SAME PERSON AS PAYEE AND MAKER. 

It is necessary for the. payee to endorse a trust 
deed note before it can be transferred, the same as 
any other note. In order to make the note more 
available for commercial purposes, it is quite com- 
mon for the maker to promise to pay to the order of 
"himself" or "myself," and then endorse the note 



124 COMMERCIAL LAW 

himself; the maker, the payee and the endorser all 
being the same party. A note thus made together 
with the trust deed which secures it may pass 
through any number of hands without any further 
endorsement, and the holder, whoever he may be, 
and no matter how remote, may sue the maker in 
his own name and insist upon the foreclosure of the 
security in the event of default in payment. 

Following is a form of note, payable to the 
maker : 
$100.00 Chicago, Illinois, Sept. 15, 1902. 

one year after date, for 

VALUE RECEIVED / Promise to pay to the 

Order of Myself , „ 

the sum of One Hundred ($100) —■ Dollars, 

at Chicago, with Interest thereon 

at the rate of 6 per cent, per annum, payable semi-annually. 

This Note is secured by a Trust Deed to John Robertson, 
Trustee, of even date herewith, on real estate in Cook County, III., 
and is to bear interest at the rate of 6 per cent, per annum after 
maturity. 



Paul Pry. 

Endorsement : ' ' Paul Pry . ' ' 

It is customary for the mortgagor to retain 
possession of the property and collect the rents. 
This possession may be taken from him, however, 
by the appointment of a receiver where he has made 
default in the payment of interest or has allowed 
the property to deteriorate and go to waste. 

CHATTEL MORTGAGES. 

Where the property mortgaged for the security 
of a debt is personal property, the mortgage is 
called a chattel mortgage. The parties are mort- 
gagor and mortgagee the same as in mortgages on 
real property. 



COMMERCIAL LAW 125 

Following are forms of chattel mortgage note 
and chattel mortgage : 

CHATTEL MORTGAGE NOTE. 
$ 190 



after date for 

VALUE RECEIVED, Promise to pay to the 

Order of the 

sum of Dollars, 

at with interest thereon 

at the rate of per cent, per annum, payable annually. 

This Note is secured by a Chattel Mortgage to 

of even date herewith, on personal property in , and 

is to bear interest at the rate of per cent, per annum 

after 

No 



CHATTEL MORTGAGE — SHORT FORM. 

KNOW ALL MEN BY THESE PRESENTS, That I, 

of the town of , in 

the County of , and State of 

in consideration of DOLLARS 

to paid by 

of the County of and State of , 

the receipt whereof is hereby acknowledged, do hereby 

grant, bargain and sell unto the said 

and to heirs and assigns 

forrever, the following goods and chattels, to-wit: 



To HAVE and to HOLD, All and singular the goods and 

chattels unto the said Mortgagee herein, and heirs and 

assigns, to their sole use and behoof forever. And the Mort- 
gagor.... herein, for and for heirs, executors 

and administrators, do hereby covenant to and with the 

said Mortgagee.... and heirs and assigns, 

that said Mortgagor lawfully possessed 

of the said goods and chattels, as of own property; 

that the same are free from all incumbrances, and that 

will warrant and defend the same to the 



126 COM MERCI AL LAW 

said Mortgagee.... and heirs and assigns, 

against the lawful claims and demands of all persons. 

PROVIDED, NEVERTHELESS, That if the said Mort- 

gagor....shall 

(Here describe the notes.) 



then this Mortgage shall be void; otherwise to remain in full 
force and effect. 

AND PROVIDED FURTHER, That until default be made 
by the said Mortgagor.... in the performance of the condition 
aforesaid, it shall and may be lawful for to retain the pos- 
session of the said goods and chattels, and to use and enjoy the 
same; but if the same, or any part thereof, shall be attached or 
claimed by any other person or persons, at any time before 
payment, or the said Mortgagor, or any person or persons what- 
ever, upon any pretense, shall attempt to carry off, conceal, 
make way with, sell, or in any manner dispose of the same, or 
any part thereof, without the authority and permission of the 
said Mortgagee.... or heirs, executors, ad- 
ministrators or assigns, in writing expressed, then it shall be 
and may be lawful for the said Mortgagee.... with or without 
assistance, or agent or attorney, or heirs, ex- 
ecutors, administrators, to take possession of said goods and 
chattels, by entering upon any premises wherever the same 
may be, whether in this County or State, or elsewhere, to and 

for the use of said Mortgagee heirs or assigns. 

And if the moneys hereby secured, or the matters to be done or 
performed, as above specified, are not duly paid, done or per- 
formed at the time and according to the conditions above set 

forth, then the said Mortgagee.... or attorney or 

agent, or heirs, executors, administrators or assigns, 

may, by virtue hereof declare the whole of said debt due, and 
with or without any suit or process immediately enter and take 
possession of said goods and chattels, and sell and dispose of the 
same at public or private sale, and after satisfying the amount 
due and all expenses, the surplus if any remain, shall be paid 

over to the said Mortgagor.... or heirs or assigns. 

The exhibition of this Mortgage shall be sufficient proof that 
any person claiming to act for the Mortgagee.... is duly made 
constituted and appointed agent and attorney to do whatever 
is above authorized. 



COMMERCIAL LAW 127 

IN WITNESS WHEREOF, The said Mortgagor.... ha.... 

hereunto set hand.... and seal— .this day 

of in the year of our Lord one thousand 

nine hundred 

Signed, sealed and delivered in presence of 

[seal.] 

[seal.] 



The statutes of some of the states, as Illinois, 
require that notes secured by chattel mortgage shall 
recite on their face that they are so secured. 

Chattel mortgages must be acknowledged be- 
fore a justice of the peace in the town or district 
where the mortgagor resides and must be recorded 
with the county recorder of deeds. As between 
the original parties they are good without recording. 
In order that the third parties may have notice, 
such recording is necessary. Where a person takes 
a chattel mortgage on personal property and fails 
to have it recorded and a creditor of the mortgagor 
obtains judgment against him, the lien of the judg- 
ment will come ahead of the mortgage. This would 
not be so if the creditor were put on notice by the 
recording of the mortgage. The public always has 
access to chattel mortgage records, and it is necessary 
oftentimes before purchasing personal property or 
before making a levy on same, to examine the rec- 
ords and ascertain as to whether it is covered by 
chattel mortgage. The period of time which may 
be covered by chattel mortgages is regulated by the 
statutes of the different states. 

Chattel mortgage notes are negotiable, but the 
mortgages themselves are not, unless made so by 
statute. 

The statutes of some of the states require that 



128 COMMERCIAL LAW 

chattel mortgages on household goods in order to 
be valid must be executed by both the husband 
and the wife. 



Review Questions. 

I. Define property. What is the right of property? 
What does the word "property" mean in its broadest sense? 
Name some of the principal classifications of property ? What 
is corporeal property ? What does the word ' ' corporeal ' ' mean ? 
What is incorporeal property? What does the word "incorpo- 
real" mean? Give examples of corporeal and incorporeal prop- 
erty. What is an easement? Is easement corporeal or incor- 
poreal ? 

II. What is real property ? Of what does it properly con- 
sist? Give examples. Is real property movable? What is 
the difference between real property and real estate ? 

III. Define personal property. By what other names is 
personal property called? When may a party have a personal 
estate in real property ? Give an example. 

IV. The interest which one has in real property is called 
what? Name as many different kinds of estates as you can. 
What does the term "freehold estate" include? What is an 
inheritable estate ? What is a life estate ? What is a fee simple 
estate? Does an estate in fee simple include all other estates? 
When does one have the best possible title to land? One who 
has a life estate has what rights ? 

V. What is dower? What is curtesy? What is the 
difference between dower and curtesy, and how are these estates 
regulated ? 

VI. How is the title to real property transferred? What 
is a deed? Name the different methods by which titles may 
pass from one to another. May a husband defeat his wife's 
interest in his real property by will? What can you say about 
consideration in deeds? What is a warranty deed? What is 
a quit claim deed ? What is the difference between a warranty 
deed and a quit claim deed? When must the long form (so- 
called) of deeds be used? When may the short form of deeds 
be used? Must deeds be acknowledged? What can you say 
of the necessity of describing the capacity in which the parties 
appear ? Must this description be contained both in the body 
of the deed and the acknowledgment? What can you say of 
the importance of recording deeds ? Give reasons for the neces- 



COMMERCIAL LAW 129 

sity of keeping a recorder's office where all titles are recorded? 
Give an example which will illustrate the importance of the 
grantee in a deed having the instrument recorded at once. What 
can you say as to the necessity of the waiver of the right of 
homestead appearing in the acknowledgment ? Why is it neces- 
sary for a wife to join her husband in a conveyance when the 
title to the land is in his name? May the title pass out of the 
owner through judgments and decrees of court ? Give examples. 

VII. What is meant by the term "tenant" in its larger 
sense ? In common usage what does the word mean ? Who is 
the landlord ? May the same person occupy the position of both 
landlord and tenant at the same time? Give an example. 
What is the contract between landlord and tenant called ? What 
is the compensation to be paid by the tenant to the landlord 
called? Where a tenant occupies the premises without a 
written agreement with his landlord, is there nevertheless a 
lease ? What can you say about a verbal lease ? Is there always 
a lease where the relation of landlord and tenant exists ? When 
must a lease be in writing ? Should they be under seal ? When 
should leases be recorded? What are the other names by 
which landlord and tenant are called? What are the essential 
elements of a lease? How may a tenant be dispossessed if he 
fails to pay the rent ? How is this done ? Does the serving of a 
five days' notice terminate the lease? Give the details of how 
a tenant may be dispossessed, from beginning to end. If a 
tenant vacates without the consent of his landlord is he liable 
for the rent? If the landlord re-leases the premises how does 
this affect the original tenant's liability? Where a tenant fails 
to surrender possession at the expiration of his lease v hat can 
the landlord do? What is meant by "use and occupation"? 
When are both husband and wife liable for rent? May a tenant 
assign his leasehold interest ? What provision do leases usually 
contain in regard to assignment ? What can you say of distress 
of rent? What must a landlord do as soon as he destrains? 
May a lease contain a confession clause like a judgment note? 
What improvements may a tenant remove at the expiration 
of his lease ? What are fixtures ? 

VIII. What is a mortgage? After the debt is paid does 
the transfer of security become void? If it is not paid what 
may be done ? What is the person who gives a mortgage called ? 
What is the person to whom it is given called ? In whom is the 
legal ownership of the property? In whom is the equitable 
ownership ? What is the difference between a mortgage and a 
trust deed? What form of security is most popular at the 
present time? What is the grantee in a trust deed called? Is 



130 COM M ERCI AL LAW 

a trust deed note negotiable? If the note is not paid at ma- 
turity what may be done? What is meant by foreclosure pro- 
ceedings? What is meant by "equity of redemption"? What 
is meant by "period of redemption"? What may the debtor 
do during the period of redemption? What is meant by "suc- 
cessor in trust " ? Is it necessary that a trust deed note recite 
upon its face that it is secured by a trust deed ? Can you write 
out the form of a trust deed note ? Can you write out the form 
of an interest or coupon note ? How may a mortgage be made 
negotiable? Should a mortgage or trust deed be acknowledged 
and recorded? May the same person be maker, payee and en- 
dorser in the note? What can you say of notes of this kind? 
Write out the form of a note of this kind. 

IX. What is a chattel mortgage? What are the parties 
to a chattel mortgage called? Should a chattel mortgage note 
recite upon its face that it is secured by a chattel mortgage? 
Can you write out the form of a chattel mortgage note? Before 
whom must a chattel mortgage be acknowledged ? Where 
must they be acknowledged? Should they be recorded? Are 
they good between the original parties without recording? 
What is the danger in failing to record a chattel mortgage? 
Does the public always have access to chattel mortgage records ? 
Are chattel mortgage notes negotiable? When should both 
husband and wife join in a chattel mortgage? 



VIII. 

BAILMENT. 

Bailment is a delivery of personal property in 
trust, upon a contract, expressed or implied, that 
the trust shall be faithfully executed by the person 
to whom the goods are delivered. The person who 
delivers the goods is the bailor; and the person to 
whom they are delivered, the bailee. The trans- 
action is called bailment. 

DEGREES OF CARE. 

There are three degrees of care required to be 
exercised by the bailee, depending upon the char- 
acter of the bailment. These are slight care, 
ordinary care, and extraordinary care. Slight care 
is that degree of care which a person of common 
sense, though absent minded and inattentive, ex- 
ercises as to his own affairs. Ordinary care is that 
degree of care which the e very-day person of reason- 
able prudence takes as to his own business. Ex- 
traordinary care is that which a man who is ex- 
tremely exact and attentive gives to his own affairs. 

DEGREES OF NEGLIGENCE. 

Inversely, there are three degrees of negligence : 
gross negligence, ordinary negligence, and slight 

negligence. 

CLASSES OF BAILMENTS. 

Bailments are divided into five classes, called: 
deposit, commission, gratuitous loans, pledge, and 
hire. 

131 



132 COMMERCIAL LAW 



DEPOSIT. 



Where property is delivered by one person to 
another and is to be kept and returned without pay 
it is a deposit. This is not to be confused with the 
custom of depositing money in banks. The deposit 
of money in a bank is not a bailment. There the 
relation of debtor and creditor exists between the 
bank and the depositor, and the identical money 
deposited is not to be returned. In bailments, the 
same property which is deposited is to be returned, 
as a rule. If the bailment is a deposit, it is for the 
benefit of the bailor, and only slight care is required 
by the bailee. And inversely, the bailee is only 
liable for gross negligence. 

COMMISSION. 

Commission is that class of bailment where the 
bailee undertakes, without pay, to do something 
for the bailor, with reference to the thing bailed. 
If the bailee does not do the thing which he promises, 
he is not liable for his failure ; but if he begins and 
leaves the work uncompleted, he is liable for the 
damages. Commission is also a bailment for the 
benefit of the bailor and only slight care is required 
by the bailee. And there is only liability in case of 
gross negligence. 

GRATUITOUS LOANS. 

Gratuitous loans are a common class of bail- 
ments. These are such loans as are of every day 
occurrence. They include all those cases where one 
person borrows goods of another and has the benefit 
of them without paying for same. In this class, 
the benefit is on the side of the bailee. And great 



COMMERCIAL LAW 133 

care must necessarily be exercised by the bailee to 
prevent loss. Slight negligence in this case will 
make the bailee liable. The borrower must use 
the thing borrowed for the specific purpose men- 
tioned, and must not transfer it to another. He 
will be liable for any loss that may be incurred as a 
result of the violation of this rule. 

PLEDGE. 

A pledge is a delivery of personal property by 
the debtor to a creditor to be held as security for a 
debt or obligation which the debtor is to pay or 
discharge. Pledges are for the benefit of both the 
bailor and the bailee. Ordinary care is required 
of the bailee and the bailee is liab e for ordinary 
negligence. It is to be understood, of course, that 
he would also be liable for gross negligence, but not 
for slight negligence. When the debt or obligation 
has been paid or met, the pledge should be returned 
to the bailor. The parties in this class of bailments 
are sometimes called pledgor and pledgee. Some- 
times the contract provides that the pledgee may 
sell the pledge in the event of the pledgor's failure 
to pay the debt or meet the obligation. If he is not 
empowered to sell upon such failure by the pledgor, 
he may hold the pledge until he can secure judg- 
ment against the pledgor. Then he may sell the 
pledge at judicial sale. A pledge differs from a 
mortgage in that possession passes to the creditor, 
while in a mortgage the debtor usually retains 
possession. 

HIRE 

Bailment for hire includes all of those trans- 
actions where one person hires the property, labor 



134 COMMERCIAL LAW 

or services of another and pays for same. The hire 
of a horse and buggy comes under this class. Where 
one person delivers property to another to have 
work done upon it for which he expects to pay, it 
is said to be a hire of service. Bailments of this 
class are for the benefit of both the bailor and the 
bailee. Only ordinary care is required by the bailee 
and he is liable for ordinary negligence. Bailments 
for hire are usually divided into four classes : hire of 
things, hire of services, hire of custody, and hire of 
carriage. Wherever the bailee secures use of the 
bailor's property for a consideration, it is a hire of 
things. Hire of services is a delivery of goods to 
another, to have work done upon them. Hire of 
custody is a contract by which goods are delivered 
to another to be taken care of. Hire of carriage 
includes that class of contracts under which goods 
and chattels are transported from one place to 
another by railroads, boats, teamsters, and so on. 



Review Questions. 

I. What is bailment ? By what names are the parties to a 
bailment transaction called? Name the three degrees of care 
in bailment. What is slight care? What is ordinary care? 
What is extraordinary care? Name, also, the degrees of negli- 
gence. What relation do degrees of negligence bear to degrees 
of care? When is a person responsible for gross negligence? 
When for ordinary negligence ? When for slight negligence ? 

II. Name the different classes into which bailments are 
divided. What is meant by deposit? Give an example. 
What is meant by commission? Give an example. What is 
meant by gratuitous loans ? Give an example. What is meant 
by pledge? Give an example. What is meant by hire? Give 
an example. 



IX. 

COMMON CARRIERS. 

Under that class of bailments designated as 
hire of carriage comes the vast business of common 
carriers. A common carrier is a person who holds 
himself out to people in common — that is, to all per- 
sons who choose to employ him — as ready to carry 
for them. He may be a carrier of goods or of per- 
sons or of both. Railroad companies, ferrymen, 
express companies, and the like are examples of 
common carriers. 

Common carriers are to be distinguished from 
private or special carriers. One who agrees in a 
special case with some private individual to carry 
for hire is simply a private carrier and is not 
governed by the laws which regulate common 
carriers. 

DUTIES AND LIABILITIES. 

A common carrier is obliged to transport the 
goods of any person who offers to pay his charges 
if he is a carrier of things. Likewise, if he is a 
carrier of passengers, he must carry all who are 
ready and willing to pay their fares. If he refuses, 
he is liable. The reason for this is that the business 
of a common carrier is in its nature public, and one 
who holds himself out in such a capacity is bound 
to accommodate all those who comply with his 
terms. If his carriage is loaded to its full capacity, 
he is not liable for refusing to take other goods, or 
other passengers. They must wait for the next 

135 



136 COM M ERC I AL LAW 

trip, or the next carriage or train as the case may bo. 
But they are entitled to accommodation as soon as 
the carrier is in a position to furnish it. 

The liability of common carriers is very strict. 
The law holds them to be the insurers of goods which 
they take for transportation. The only cases in which 
they are not liable are those where the loss occurs 
as the result of so-called " acts of God " or of a public 
enemy. Storms, earthquakes, floods, and the like 
are said to be "acts of God." Public enemies are 
hostile nations or citizens of hostile nations. 

Common carriers may limit their liabilities by 
express contracts. Railroad companies, in this way, 
often limit their liabilities by the stipulations which 
are printed upon bills of lading. The conditions 
contained in such bills of lading are usually held to 
be binding upon the person who accepts them. 

But where the loss results from the negligence 
of the common carrier or his agent, the liability 
cannot be avoided by contract. It would be against 
public policy to allow a common carrier to thus 
limit his liability. If he could do so, he might ignore 
not only the safety of the goods which he trans- 
ported, but also of passengers, and thus cause un- 
told loss and suffering. Transportation companies 
have often issued tickets bearing printed stipulations 
that the carrier should not be liable for any injury 
which might befall the passenger; but the courts 
have held universally that such stipulations will 
not afford a means of escape by the carrier from the 
consequences of his own negligence. 

While common carriers are not allowc 1 +o 
discriminate between different persons, the? tt© 
not obliged to carry those who are afflicted witl 



COMMERCIAL LAW 137 

infectious or contagious disease, or whose presence 
would, for any reason, be dangerous to the general 
public. Common carriers may also make reasonable 
rules and regulations, and they will not be held liable 
for failure to accommodate those who refuse to com- 
ply with such requirements. Railroad companies 
often demand that a passenger shall show his ticket 
before entering the car. This has been held to be a 
reasonable rule. Carriers are not obliged to accept 
either the goods or the persons of those who refuse 
to pay their charges. 

The business of common carriers being public, 
their charges are often regulated by law. The 
fares to be paid on street cars and railroads are ex- 
amples. The maximum street car fare is usually 
five cents. Some states fix the maximum railroad 
fare at three cents per mile, 



Review Questions. 

I. What is meant by a common carrier? What is a 
private or special carrier? What is the difference between 
common and private carriers? Give examples of each. Is a 
common carrier a bailee ? Name some of the duties of common 
carriers. Is a railroad company obliged to carry passengers? 
Is it obliged to carry freight? Give reasons. If a train is 
loaded will the company be liable if it refuses to take on any 
more goods or passengers ? 

II. What can you say of the strictness of the liability of 
common carriers? Are they insurers of the property which 
they take for transportation? In what cases does the law re- 
fuse to hold them liable in the event of loss ? What is meant by 
the so-called "acts of God"? Give an example. What is a 
publ ; ~ ?nemy? May carriers limit their liabilities by contract? 

.amples. May carriers limit their liabilities for negli- 
>y contract? Give reasons for your answer. May a 
i carrier discriminate between different persons? If a 



138 COMMERCIAL LAW 

person is afflicted with a loathsome disease, can he compel a 
common carrier to accommodate him? Give reasons May 
railroad companies and other common carriers make rules and 
regulations which the public is bound to comply with? On 
what ground do the legislatures of the different states and the 
different municipalities regulate the charges of common carriers? 



X. 

INSOLVENCY AND BANKRUPTCY. 

The different states of the United States have 
insolvency laws. Usually under these laws a per- 
son i 3 insolvent who is unable to pay his obligations 
in money as they mature. A person who makes an 
assignment under state insolvency acts, transfers 
his property, by a written instrument, to a third 
party called an assignee. Thereafter his estate is 
under the jurisdiction of the court, and his affairs 
are looked after by the assignee. All persons having 
claims against an insolvent estate of this kind must 
bring them forward in the insolvency proceeding. 
Thus a multiplicity of suits with their attendant 
costs and troubles is avoided. After a person has 
made an assignment in this way, all suits are pros- 
ecuted and defended by the assignee. State in- 
solvency acts are designed to save persons in failing 
circumstances from the necessity of being obliged 
to defend against each creditor separately. The 
creditors all come into the one proceeding, and unless 
some of them have claims which for some reason are 
preferred, they will prorate the assets of the insolvent. 
When all the assets of the estate have been sold and 
the proceeds divided among the creditors, the as- 
signee is discharged, and the insolvent may again 
go about his business in his own way. He, how- 
ever, remains liable for any balance due to his 
creditors, and they are at liberty to proceed against 
him at any time, the same as though no proceedings 
had been had, 

139 



140 COMMERCIAL LAW 



BANKRUPTCY. 



Bankruptcy proceedings are different. Bank- 
rupt laws are national, being enacted by Congress, 
and the Federal courts, and not the State courts, 
have jurisdiction in bankruptcy cases. When a 
person is discharged in bankruptcy, his debts are 
forever wiped out, and this, whether his estate paid 
a large or a small amount on account of his obliga- 
tions. And in some cases bankrupts have no prop- 
erty at all and creditors get absolutely nothing. 
Their debts are nevertheless wiped out as legal ob- 
ligations, and after discharge they cannot be sued 
or in any way legally molested by their bankruptcy 
creditors. 

Where a bankrupt has assets the court will ap- 
point a trustee to take charge of his affairs, and 
thereafter suits in which he is interested will be 
prosecuted or defended by the trustee. 

KINDS OF BANKRUPTS. 

There are two classes of bankrupts: voluntary 
and involuntary. 

A voluntary bankrupt is one who seeks the benefit 
of the bankruptcy law of his own volition. An in- 
voluntary bankrupt is one who is forced into bank- 
ruptcy by his creditors. 

Any person who owes debts, except a corpora- 
tion, is entitled to the benefit of the bankruptcy 
laws as a voluntary bankrupt. It matters not 
what business he is engaged in or how small an 
amount he owes, if he is insolvent he may become 
a bankrupt. 

Any natural person (except a wage earner or 



COMMERCIAL LAW 141 

a person engaged chiefly in farming or the tillage 
of the soil) , or any unincorporated company, or any 
corporation engaged principally in manufacturing, 
trading, printing, publishing or mercantile pur- 
suits, owing debts to the amount of one thousand 
dollars or over, may be forced into involuntary 
bankruptcy, upon the commission of an act of 
bankruptcy. 

So called acts of bankruptcy of which a person 
must be guilty before he can be thrown into in- 
voluntary bankruptcy are as follows: 

1. Having conveyed, transferred, concealed, 
removed, or permitted to be concealed or removed, 
any part of his property, with intent to hinder, de- 
fraud or delay his creditors or any of them. 

2. Having transferred, while insolvent, any 
portion of his property to one or more of his credit- 
ors, with intent to prefer such creditors over his 
other creditors. 

3. Having suffered or permitted, while in- 
solvent, any creditor to obtain a preference through 
legal proceedings, and not having at least five days 
before a sale or final disposition of any property 
affected by such preference, vacated or discharged 
such preference. 

4. Having made a general assignment for the 
benefit of his creditors. 

5. Having admitted in writing his inability 
to pay his debts, and his willingness to be adjudged 
a bankrupt on that ground. 

When one is discharged through involuntary 
proceedings, he is relieved of all his debts, which 
are provable in bankruptcy, the same as in voluntary 
proceedings. 



142 COMMERCIAL LAW 

The term ''insolvency" has a different meaning 
tinder the bankruptcy law from that given to it 
under most of the state laws pertaining to insolvency. 
In bankruptcy one is only insolvent when his entire 
property, at a reasonable valuation, is not equal to 
his liabilities. It matters not that he may be unable 
to meet his maturing obligations in money. 

DEBTS NOT AFFECTED BY BANKRUPTCY. 

There are certain debts which are not provable 
in nor discharged by bankruptcy proceedings. 
These are: 

1. Taxes levied by the United States, or the 
state, county, district or municipality in which the 
bankrupt resides. 

2. Judgments obtained in actions for frauds, 
or for obtaining property by false pretenses, or for 
willful and malicious injuries to the person or prop- 
erty of another. 

3. Such debts as have not been duly scheduled 
in the bankruptcy proceeding. If it can be shown, 
however, that the creditor had actual knowledge 
of the bankruptcy proceeding, his claim will be 
barred, even though it may not have been scheduled 
by the bankrupt. 

4. Such debts as are created by the fraud, 
embezzlement, misappropriation or defalcation of 
the bankrupt while acting as an officer or in any 
fiduciary capacity. 

Bankruptcy petitions are filed in the district 
courts of the United States. Before a person may 
file a petition, he must have been a resident or had 
his principal place of business within the district 
in which he makes his application for at least six 
months. 



COMMERCIAL LAW 143 

Whether the proceeding is voluntary or in- 
voluntary, the bankrupt must make a full schedule 
of all his assets and liabilities. His assets, except 
such as are allowed to him by law as exempt, are 
then sold and the proceeds applied on account of 
his debts. Exemptions are allowed in accordance 
with the exemption laws of the state in which the 
proceedings are had. Corporations have no ex- 
emptions. 

Practically every period of hard times, so- 
called, in the United States has been followed by a 
national bankruptcy act. These acts are allowed 
to remain upon the Federal statutes for a sufficient 
length of time to allow those who have been un- 
fortunate to relieve themselves of their obligations, 
and then repealed. The present bankruptcy law 
was enacted in 1898. 



Review Questions. 

I. What is meant by insolvency? Define the term in- 
solvency as used tinder the laws of the different states. How 
may a person make an assignment ? By what name is the per- 
son who makes an assignment called? What are the advan- 
tages of state insolvency laws ? If a person has made an assign- 
ment under a state insolvency law may he afterwards be sued 
on an account, only part of which was satisfied out of the assets 
in the insolvency proceedings? What are the principal ad- 
vantages of state insolvency laws ? 

II. What is a bankrupt? Are bankruptcy laws always 
national ? Could a state pass a bankruptcy law which would be 
valid ? (There is nothing in the text which gives a direct answer 
to this question.) Give reasons if you can. What is meant by 
the term insolvency under the bankrupt law? When a person 
is discharged in bankruptcy are his debts wiped out? Suppose 
he has absolutely no assets, will he nevertheless be relieved of 
his obligations? Where a bankrupt has assets will the court 
appoint a trustee to take charge of his affairs during bankruptcy 
proceedings ? 



144 COM MERC I AL LAW 

III. Name the two classes of bankrupts. What is meant 
by a voluntary bankrupt ? What is meant by involuntary bank- 
rupt? Who may become a voluntary bankrupt? Who may 
not become a voluntary bankrupt? Who may be forced into 
involuntary bankruptcy? What amount of debts must one 
owe before he can be forced into bankruptcy? Can you name 
the five so-called acts of bankruptcy? May a person who has 
not committed any one of these acts of 'bankruptcy be forced 
into involuntary bankruptcy? Does the discharge in invol- 
untary bankruptcy mean the same as a discharge in voluntary 
bankruptcy? What does the term insolvency mean under 
the bankruptcy law ? 

IV. Can you name the four classes of debts which are not 
discharged by bankruptcy proceedings? In what courts are 
bankruptcy petitions filed? Must a person.be a resident of a 
district before he can file a petition? Name the exact require- 
ments in this regard. Is it necessary that bankrupts make a 
full schedule of all their assets and liabilities? What is done 
with the assets? What can you say as to exemptions? What 
law governs as to exemptions? Do corporations have «xemp- 
tions? When and why are bankruptcy laws passed? 



MISCELLANEOUS INFORMATION. 

As previously pointed out, the different states 
have various statutory regulations as to grace, 
interest, and periods of limitation. In many states 
grace has been abolished. All states have justices 
of the peace. These are sometimes called the 
"poor man's court," as they have jurisdiction only 
over small cases. A great many states limit the 
jurisdiction of a justice of the peace to $200.00. 
Their judgments are just as effective as those of any 
other court in matters which come under their 
jurisdiction. By the statute of limitations is meant 
that there is a certain time within which an action 
must be brought. If one waits too long his right 
of action may be barred by limitation. For ex- 



COMMERCIAL LAW 



145 



ample : in Illinois one must sue on a note within ten 
years after it matures. If he waits more than ten 
years, the defendant may plead the statute of limita- 
tions and thus defeat his cause of action. 

The following table will show what the law is 
in regard to grace, interest, jurisdiction of justices 
of the peace, and the statute of limitations in the 
different states : 



STATES AND 

TERRITORIES 



GRACE 
ALLOWED 



Sight 

Paper 

a 



Alabama 

Arizona 

Arkansas 

California 

Colorado 

Connecticut .... 

Delaware 

District of Coluni 

Florida 

Georgia 

Idaho 

Illinois 

Indiana 

Indian Territory. 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts . . 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 



Yes 

Yes 

Yes 

No 

Yes 

No 

No 

No 

No 

No 

No 

No 

Yes 

Yes 

Yes 

No 

Yes 

No ' 

Yes 

No 

Yes 

Yes 

Yes 

Yes 

No 

No 

Yes 



Time 
Paper 



Yes 

Yes 

Yes 

No 

Yes 

No 

No 

No 

Yes 

Yes 

No 

No 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

No 

No 

No 

Yes 

Yes 

Yes 

Yes 

No 

Yes 



INTEREST 



Legal 
Rate 



Contr't 
Rate 



8 
7 
6 
7 
8 
6 
6 
6 
8 
7 

10 
5 
6 
6 
6 
6 
6 
5 
6 
6 
6 
6 
7 
6 
6 

10 
7 



8 
b 

10 
b 
b 
b 
6 

10 

10 
8 

18 
7 
8 

10 
8 

10 
6 
8 
b 
6 
b 
8 

10 

10 
8 
b 

10 



ti o 



100. 

300. c 

300 c 

299.99 

300. 

100. 

200.C 

300. c 

100. 

100.C 

300 

200. 

200. d 

100. e 
300. 
100-c 
100-c 

20. 
100. 
1000. 
300. 
100. 
200. c 

f 
300. 
200. 



LIMITATION 



Acc'ts 
Years 



Notes 
Years 



6j 

5 

5 

2k 

6 

61 

6 

3 

5 

6 

5 

10 

10 

5 

10 

'5 

15 

5 

6m 
3 
6 
6 
6 
6 
10 
8 
5 



146 



COMMERCIAL LAW 





GRACE 






'A 

Q 






ALLOWED 


INTEREST 




LIMITATION 


STATES AND 


{ 










TERRITORIES 


Sight j Time 


Legal 


Contr't 


w fa 


Acc'ts 


Notes 




Paper Paper 
a 


Rate 


Rate 


D 


Years 
4 


Years 


Nevada 


No 


Yes 


7 


b 


300.C 


6 


New Hampshire . 


Yes 


Yes 


6 


6 


13.13 


6 


6 


New Jersey 


No 


No 


6 


6 


200. 


6 


6 


New Mexico .... 


Yes 


Yes 


6 


12 


100.C 


4 


6 


New York 


No 


No 


6 


6 


200.g 


6 


6 


North Carolina . . . 


Yes 


Yes 


6 


6 


200.C 


3 


3 


North Dakota . . . 


No 


No 


7 


12 


200. 


6 


6 


Ohio 


No 
Yes 


No 
Yes 


6 

7 


8 
b 


300. 
100. 


6 
3 


15 


Oklahoma 


5 


Oregon 


No 


No 


8 


10 


250. 


6 


6 


Pennsylvania. . . . 


No 


No 


6 


6 


300.C 


6 


6 


Rhode Island. . . . 


Yes 


Yes 


6 


b 


300. 


6 


6 


South Carolina. . . 


Yes 


Yes 


7 




10 . 


6 


6 


South Dakota . . . 


Yes 


Yes 


7 


12 


100. 


6 


6 


Tennessee 


No 


Yes 


6 


6 


h&i 


6 


6 


Texas 


Yes 


Yes 


6 


10 


200.C 


2 


4 


Utah 


No 


No 


8' 


b 


299.99 


4 


6 


Vermont 


No 


No 


6 


6 


200. 


6 


6 


Virginia 


No 


No 


6 


6 


100. c.o 


3 


5 


Washington .... 


Yes 


Yes 


7 


12 


100. 


3 


6 


West Virginia . . . 


Yes 


Yes 


6 


6 


300.C 


5 


10 


Wisconsin 


No 


No 


6 


10 


200.d 


6 


6 


Wyoming 


Yes 


Yes 


8 


12 


200.C 


8 


5 


a Drafts and Checks on Banks 


j 1 


ren years, if under seal. 


excepted. 


k I 


? our years, if executed in 


b No limit. 




State. 


c And interest. 


1 I 


f non-negotiable, 17 years. 


d By confession, $300. 


m 


If notes are witnessed, 20 


e By consent of parties, $300. 




years. 


f In cities and counties of 300, 


- n ( 


Dn any bill of exchange, 


000, $500; in cities and 




note or draft payable on 


counties of 50,000 to 300,- 




demand, grace not al- 


000, $300; elsewhere, $250. 




lowed. 


g By confession, $500. 


o ( 


Dn retail store accounts, 


h If note, $1,000. 




2 years; on accounts be- 


i If open account, $500 




tween merchant and mer- 










chant, 


5 yean 







AUb 12 1907 



ill 



il 
HI 



IHiM 

WW 



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